Natural Gas Advances as Contract Expires Amid Hot Weather View

Natural gas futures gained for a third day in New York, climbing as the September contract expired amid forecasts for hotter-than-normal weather that would spur power demand before temperatures moderate next week.

Gas climbed 0.9 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted above-normal temperatures in most of the contiguous U.S. through Sept. 1, following by average or cooler-than-usual weather in the eastern half of the U.S. through Sept. 11.

“People holding short positions are exiting them as the September contract expires and that’s why we’re seeing the front-month contract moving higher than the rest of the curve,” said Aaron Calder, an analyst at Gelber & Associates in Houston. “We have a heat wave in the Northeast, but it’s unclear how mild the weather is going to be after that.”

Natural gas for September delivery rose 3.3 cents to settle at $3.567 per million British thermal units on the New York Mercantile Exchange. Trading volume was 27 percent below the 100-day average at 2:36 p.m. Prices have climbed 6.4 percent this year.

The more actively traded October contract advanced 0.9 cent to $3.582 per million Btu.

October gas traded 35.3 cents below the January contract, compared with 36.3 cents yesterday.

November $2.90 puts were the most active options in electronic trading. They were 0.1 cent lower at 0.7 cent per million Btu on volume of 981 at 3:03 p.m. Puts accounted for 48 percent of trading volume. Implied volatility for October at-the-money options was 31.27 percent at 3:15 p.m., compared with 31.71 percent yesterday.

Chicago High

The high in Chicago on Aug. 31 may be 89 degrees Fahrenheit (32 Celsius), 9 higher than average, according to AccuWeather Inc. The high in New York may be 86 degrees Fahrenheit, 6 more than usual.

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

“The bullish case for the gas market is the hot weather we’re continuing to see in the eastern U.S.,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “Traders are also looking at the fact that the peak of hurricane season is still around the corner.”

Tropical Weather

Showers and thunderstorms about 1,400 miles (2,253 kilometers) east of the Lesser Antilles have a 20 percent chance of becoming a tropical cyclone during the next five days, the National Hurricane Center said in a 2 p.m. outlook. Another system over West Africa also has a 20 percent chance of strengthening to a tropical cyclone during the same period.

The Gulf of Mexico accounts for 5.7 percent of U.S. gas production, EIA data show. Sept. 10 is the statistical peak of the Atlantic hurricane season, according to the National Hurricane Center.

EIA data scheduled for release tomorrow may show gas inventories rose by 62 billion cubic feet in the week ended Aug. 23, according to the median of 19 analyst estimates compiled by Bloomberg. The five-year average increase for the period is 66 billion. Supplies climbed by 64 billion in the same seven days last year.

Stockpiles totaled 3.063 trillion cubic feet in the week ended Aug. 16, or 1.5 percent above the five-year average, according to the EIA. Inventories were 7.2 percent below year-earlier supplies.

Gas Production

The U.S. lowered its 2013 natural gas production estimate to 69.89 billion cubic feet a day from last month’s forecast of 69.96 billion, the EIA said Aug. 6 in in its Short-Term Energy Outlook. Output may rise 1 percent from a year ago to a record as onshore supplies climb.

Inventories may reach 3.8 trillion cubic feet at the end of October, about 130 billion below last year’s level for the time of year, the EIA said.

The number of rigs drilling for natural gas in the U.S. last week fell by one to 387 last week, data from Baker Hughes Inc. in Houston show. The total is down 10 percent this year.

The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.

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