Natural Gas Futures Jump to Seven-Week High on Inventory Outlook

Natural gas futures surged in New York to the highest price in more than seven weeks on speculation that a supply report this week will show a smaller-than-normal increase amid hot weather in the Midwest.

Gas climbed 1.7 percent. Government data scheduled for release on Sept. 19 may show inventories rose by 62 billion cubic feet in the week ended Sept. 13, compared with the five-year average gain of 74 billion, according to Citi Futures Perspective. MDA Weather Services said central U.S. temperatures may be above-normal through Sept. 30.

“Traders are looking for a below-average storage injection this week,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “We still have some very hot temperatures in the Midwest and the market is still trending up.”

Natural gas for October delivery rose 6.1 cents to $3.738 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 23. Trading volume was 3.1 percent above the 100-day average at 2:34 p.m. Prices are up 12 percent this year and gained 4.2 percent last week.

The discount of October to November futures narrowed 0.2 cent to 7.6 cents. October gas traded 30.3 cents below the January contract, compared with 31.2 cents on Sept. 13.

November $2.85 puts were the most active options in electronic trading. They were 0.1 cent higher at 0.2 cent per million Btu on volume of 1,455 at 2:54 p.m. Puts accounted for 47 percent of trading volume. Implied volatility for October at-the-money options was 28.91 percent at 2:45 p.m., compared with 27.75 percent on Sept. 13.

CFTC Report

Money managers’ net-long wagers on four U.S. natural gas contracts rose by 3,120, or 1.2 percent, to 271,676 futures equivalents, the highest level since July 23, according Commodity Futures Trading Commission data released Sept. 13.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

Gas inventories totaled 3.253 trillion cubic feet in the week ended Sept. 6, 1.4 percent above the five-year average and 5 percent below year-earlier supplies, EIA data show.

The high in Chicago on Sept. 19 may be 83 degrees Fahrenheit (28 Celsius), 9 more than usual, according to AccuWeather Inc. in State College, Pennsylvania. The high in Houston may be 92 degrees, 4 above normal.

Power Plants

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

Tropical Storm Ingrid was moving inland over Mexico with maximum sustained winds of about 45 miles (75 kilometers) per hour, the National Hurricane Center in Miami said in a 2 p.m. advisory. The Gulf of Mexico will account for 5.6 percent of U.S. gas production this year, EIA data show.

An area of disturbed weather over the northwestern Caribbean Sea may move across the Yucatan Peninsula into the southwestern Gulf of Mexico in the next few days, according to the hurricane center. The system has a 20 percent chance of becoming a tropical cyclone during the next five days.

Gas output will climb 2.3 percent, or 1.5 billion cubic feet a day, to average 67.8 billion cubic feet a day in 2014, faster than this year’s growth rate of 0.5 billion cubic feet a day, Bill Herbert, an analyst at Simmons & Co. in Houston, said in a note to clients today.

Growth will be driven by increased production from the Marcellus shale in the Northeast and associated gas from oil drilling while decline rates at legacy unconventional wells flatten, Herbert said.

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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