Bloomberg News

Natural Gas Gains on Forecasts of Hotter-than-Normal Weather

June 07, 2011

June 7 (Bloomberg) -- Natural gas futures advanced for a second day in New York on forecasts of above-normal temperatures that may boost demand for the power-plant fuel.

Gas rose to a 10-month high after forecasters including the National Weather Service in Mount Holly, New Jersey, said temperatures along the U.S. East Coast may climb toward 100 degrees Fahrenheit (38 Celsius) tomorrow and bake the region for the rest of the week.

“The weather’s still hot, and that kind of remains the main driver,” said Kyle Cooper, director of research at IAF Advisors in Houston. “Mother nature’s been a huge bullish factor.”

Natural gas for July delivery rose 0.4 cent to $4.831 per million British thermal units on the New York Mercantile Exchange, settling at the highest price since July 30 for the second straight day. Gas has gained 9.7 percent this year.

The Relative Strength Index for gas reached 66.682 yesterday, according to Bloomberg data. Some technical analysts use the index to track how rapidly prices gain or retreat. A reading above 70 suggests prices may fall.

An excessive heat watch, meaning conditions are expected to become dangerous, has been issued for eastern Pennsylvania, including Philadelphia, and western New Jersey starting tomorrow, according to the National Weather Service.

Hot Weather

The high temperature in Houston, Texas, on June 12 may be 96 degrees Fahrenheit, 6 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The high in Washington may be 87 degrees, 4 above normal.

“Peak heat days are today and tomorrow in the Midwest and tomorrow to Thursday for the East Coast, but Friday is inching up hotter for the East Coast, too,” Commodity Weather Group LLC President Matt Rogers said in a note to clients today.

Cooling demand in the U.S. may be 11 percent above normal on June 12, according to Weather Derivatives in Belton, Missouri.

Power plants use about 30 percent of the nation’s gas supplies, according to the Energy Department.

An area of showers and thunderstorms over the northwestern Caribbean Sea has a 10 percent chance of becoming a cyclone within the next 48 hours, according to the National Hurricane Center. Wind conditions are becoming less favorable for development, the hurricane center said in a tropical weather outlook released at 2 p.m. today in Miami.

The Gulf of Mexico accounts for about 8.4 percent of natural gas gross production in the U.S., according to the Energy Department.

Gas Production

Gross output includes gas used for repressuring, quantities vented and flared, and non-hydrocarbon gas removed in treating or processing operations.

Cheniere Energy Inc. plans to start exporting liquefied natural gas from its Louisiana terminal in 2015, Chairman Charif Souki said at the Asia Oil and Gas Conference in Kuala Lumpur today. The company may get Federal Energy Regulatory Commission approval this year to build a facility at the site that can liquefy gas for export by tankers, he said.

Marketed gas production will average 64.61 billion cubic feet a day in 2011, up 2.2 percent from 63.23 billion estimated in May, the Energy Department said in its monthly Short-Term Energy Outlook, released today in Washington. The estimate is up 4.5 percent from 61.83 billion produced in 2010.

Total gas consumption will average 67.06 billion cubic feet a day, up from 66.48 billion estimated in May.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $4.25 per million Btu this year, up from the previous estimate of $4.24, according to the department.

Gas futures volume in electronic trading on the Nymex was 334,094 as of 2:38 p.m., compared with the three-month average of 315,000. Volume was 372,195 yesterday. Open interest was 973,450 contracts. The three-month average open interest is 940,000.

The exchange has a one-business-day delay in reporting open interest and full volume data.

--Editors: Bill Banker, Charlotte Porter

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net; Brian K. Sullivan in Boston at bsullivan10@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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