Natural Gas Climbs on Speculation Heat Will Slow Inventory Gains

Natural gas futures advanced in New York, capping the fourth weekly gain since Aug. 9, on speculation that late-summer heat is slowing stockpile gains.

Gas rose 1.1 percent as forecasters including Commodity Weather Group LLC in Bethesda, Maryland, predicted above-normal temperatures from the Midwest to Texas next week. Highs this week in Chicago, New York and Washington topped 90 degrees Fahrenheit (32 Celsius).

“We had that heat, that will be the bullish saving grace next week,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’re still holding on to yesterday’s gains from the supply number and next week the number is going to be smaller.”

Natural gas for October delivery rose 3.9 cents to $3.677 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Sept. 4. Volume was 21 percent below the 100-day average at 3:15 p.m. The futures gained 4.2 percent this week, the biggest weekly advance since Aug. 16, and are up 9.7 percent this year.

The discount of October to November futures widened 0.3 cent to 7.7 cents. October gas traded 31 cents below the January contract, compared with 30.5 cents yesterday.

October $4.20 calls were the most active options in electronic trading. They were unchanged at 0.1 cent per million Btu on volume of 2,340 at 3:17 p.m. Calls accounted for 59 percent of trading volume. Implied volatility for October at-the-money options was 27.48 percent at 3:15 p.m., compared with 28.24 percent yesterday.

Prices Up

Gas prices have risen 18 percent from a six-month intraday low of $3.129 on Aug. 8 as late summer heat reduced the pace of inventory increases.

The high temperature this week in Boston climbed to 97 degrees, 23 above normal, and Chicago reached 96, 18 above average, according to data from AccuWeather Inc. in State College, Pennsylvania. Chicago’s readings were in the 60s today and will return to the 80s next week, while Boston’s highs will range from 65 to 75.

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

Gas inventories rose 65 billion cubic feet last week to 3.253 trillion, above-the five-year average gain of 62 billion for the period, EIA data show. Analyst estimates compiled by Bloomberg forecast an advance of 68 billion. A surplus to the five-year average held at 1.4 percent for a second week. Supplies were 5 percent below year-earlier inventories, compared with 6.2 percent the previous seven days.

Inventory Impact

This week’s surge of heat in the East, along with a drop in nuclear generation, will probably mean that next week’s inventory report will show an increase in the low 50s, said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

The five-year average for the seven days ending Sept. 13 is 74 billion, EIA data show. A number in the 50s would mean the supply gain would fall below year-earlier levels for the first time since April 26. Last year, a gas supply surplus ballooned by the end of March because of an unusually mild winter and record production, which then limited storage injections during the summer months.

The U.S. National Hurricane Center is monitoring Tropical Storm Ingrid in the Bay of Campeche off the southeastern coast of Mexico.

Gulf Watched

Storms in the Gulf of Mexico, which includes the bay, tend to be closely watched because of their proximity to oil and natural gas producing and refining. The Gulf is home to about 5.6 percent of U.S. gas output, EIA data show.

In the Atlantic, Tropical Depression Gabrielle was moving north-northeast with maximum sustained winds of 35 mph on track to the Canadian Maritime provinces, the hurricane center said.

Hurricane Humberto weakened to a tropical storm with top winds of 65 mph about 765 miles northwest of the Cape Verde Islands.

“None of these appear particularly threatening” to U.S. Gulf production, Viswanath said. “Humberto is simply tracking too far north at this point and will likely take the same path as Gabrielle.”

The number of rigs drilling for gas rose by 7 this week to 401, the most since March 22, Baker Hughes Inc. data showed today. The rig count is down 7 percent this year.

U.S. gas production may climb 1.1 percent this year to a record 69.91 billion cubic feet day, gaining for the sixth straight year, the EIA said in its Short-Term Energy Outlook on Sept. 9. The forecast was increased from 69.89 billion last month.

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