Natural Gas Futures Cap Third Quarterly Gain on Summer Heat

Natural gas futures capped a third straight quarterly gain in New York as a blast of July heat may spur demand for the power-plant fuel.

Temperatures will be above normal across the East and West coasts over the next five days before the heat retreats, according to MDA Weather Services in Gaithersburg, Maryland. Gas stockpile gains topped 100 billion cubic feet for seven consecutive weeks, a record streak in 20 years of U.S. government data.

“As we get close to July and August, the peak-demand months, we should expect some heat,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “We sold off pretty hard last week after another triple-digit injection. We will see what July brings, but we are going to have another triple-digit this week and we will probably have another one the following week because the Fourth of July.”

Natural gas for August delivery rose 5.2 cents, or 1.2 percent, to settle at $4.461 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 24 percent below the 100-day average at 2:35 p.m. Price gained 2.1 percent this quarter and slid 1.8 percent in June, the fourth monthly decline this year.

The gas market will be closed July 4 for the U.S. Independence Day holiday.

Forecasts turned warmer for the eastern third of the lower 48 states from July 10 through July 14, MDA said. The western region will also see higher-than-normal readings during the period while Texas may see seasonal temperatures.

Atlanta Heat

Atlanta’s high over the next two days will climb to 95 degrees Fahrenheit (35 Celsius), 7 above normal, according to AccuWeather Inc. New York City’s reading will rise to 94 degrees, 10 above normal, on July 9.

Power plants account for 31 percent of gas consumption, peaking in the third quarter, data show from the U.S. Energy Information Administration.

Gas futures dropped to a one-month low last week after an EIA report showed that inventories expanded by more than the five-year average for the 10th straight week.

The lack of heat for the July 4 holiday, which will usher in lower industrial demand, “should allow for the large pace of injections to continue,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The market will remain vulnerable to a forecast that turns appreciably warmer.”

Seasonal Low

Stockpiles of the power-plant fuel totaled 1.829 trillion cubic feet in the seven days ended June 20, the lowest level for the time of the year since 2003, according to the EIA. A supply deficit to the five-year average has narrowed to 31 percent from a record 54.7 percent in March.

The government estimates that storage levels will rise to 3.424 trillion cubic feet by the end of October, which would be the lowest start to the heating season since 2008.

Gross gas output in the lower 48 states rose 1.3 percent in April to 77.52 billion cubic feet a day from the previous month as new wells came online in Texas, according to the monthly EIA-914 report, released today. The “Other States” category, which includes the Marcellus shale in the Northeast, fell 0.5 percent to 29.65 billion because of “maintenance and equipment issues,” the EIA said in the report.

U.S. marketed production, which excludes extraction losses, will rise 4 percent this year to 73 billion cubic feet a day from 2013 levels, climbing to a record for the fourth straight year, the EIA said in its June 10 Short-Term Energy outlook. Gains are being driven by technologies, such as hydraulic fracturing, or fracking, that made it more economical to extract fuel from shale.

Fracking Ban

New York cities and towns can block fracking within their borders, the state’s Court of Appeals in Albany said today. The ruling by the state’s highest court may reinvigorate local challenges to the practice in states across the country. Governor Andrew Cuomo is considering whether to lift a six-year-old statewide fracking moratorium.

Gas futures, which moved between gains and losses through the early trading hours, jumped after testing various technical levels, said Allen Rather, an independent gas analyst in Victoria, Texas.

Prices rebounded after briefly sliding below the 40-week average of $4.394, the discount for October futures to January narrowed to a record and the March-to-April spread widened, he said.

“Even though we are seeing production increase and the balances start to loosen a little bit, there is still some fear going into the heating season with 3.4 or 3.5 trillion in inventories,” he said.

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