Natural Gas Futures Rise as Heat to Build in U.S. East

Natural gas futures rose to a three-week high in New York as forecasts showed a resurgence of hot weather in the eastern U.S. that would boost power demand.

Temperatures may be higher than average on the East Coast, parts of the Gulf Coast and the Great Lakes region Aug. 21 through Aug. 25 after mild weather earlier in the month, according to MDA Weather Services in Gaithersburg, Maryland. The high in Philadelphia on Aug. 24 may be 94 degrees Fahrenheit (34 Celsius), 10 above normal, AccuWeather Inc. said.

“We’re seeing some warmer temperatures and more demand is a possibility,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The market is trying to break out to the upside.”

Natural gas for September delivery gained 0.3 cent to $3.965 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 16. Volume for all futures traded was 26 percent above the 100-day average at 2:56 p.m. Prices are up 23 percent from a year ago. Gas climbed above $4 per million Btu in intraday trading for the first time since July 17.

The high in New York on Aug. 24 may be 92 degrees Fahrenheit, 10 more than usual, AccuWeather data show.

Power plants account for 31 percent of gas demand, data from the U.S. Energy Information Administration show. The agency is the Energy Department’s statistical arm.

Power Plants

Gas deliveries to electricity generators have surged 20 percent since June 21 to 27.9 billion cubic feet yesterday, according to LCI Energy Insight in El Paso, Texas. Gas inventories were 20 percent below the five-year average on Aug. 1, the biggest deficit for the time of year since at least 2005.

The EIA estimates that even with production at an all-time high, gas inventories will reach 3.431 trillion cubic feet by the end of October, which would be the lowest start to the peak heating season since 2008.

Marketed gas consumption may advance 1.5 percent this year to 72.37 billion cubic feet a day, led by industrial users, the EIA said July 8 in its monthly Short-Term Energy Outlook. The agency increased its estimate for average 2014 natural gas prices to $4.77 per million Btu from $4.74 in the June report.

Hedge funds cut the combined net-long position across four benchmark natural gas contracts by 21 percent in the week ended Aug. 5 after 15 weeks of above-average stockpile increases. Wagers declined by 40,542 futures equivalents to 152,007, the lowest level since Nov. 26.

Sanford C. Bernstein & Co. cut its 2014 natural gas price estimate to $4.45 per thousand cubic feet ($4.33 per million Btu) from $4.75, citing production growth in the lower 48 states. Bernstein had previously said prices would have to rise to boost output and refill storage from an 11-year low.

“At least for the past three months, the historical strong relationship between price, marginal cost and storage levels has not held,” Bob Brackett, a senior analyst at the bank in New York, said in a note to clients today.

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