Bloomberg News

Natural Gas Rises to 10-Month High on Hot Weather Forecasts

June 08, 2011

June 8 (Bloomberg) -- Natural gas futures rose, reaching a 10-month high for a third consecutive day, as hotter-than-normal weather expected this week signaled stronger demand from power plants to run air conditioners.

Prices gained 0.3 percent as forecasters including Commodity Weather Group LLC in Bethesda, Maryland, said temperatures will be above-normal in the East, Midwest and South through June 12. A government report tomorrow may show U.S. gas stockpiles increased less than average, according to analyst estimates compiled by Bloomberg.

“The weather has been quite bullish,” said Kyle Cooper, director of research for IAF Advisors in Houston. “There are also expectations of lower injection tomorrow.”

Natural gas for July delivery gained 1.6 cents to $4.847 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since July 30. Gas has risen 10 percent this year.

Heat advisories and warnings extended from New York to northern Virginia today, including Washington, Baltimore and Philadelphia, where temperatures are forecast to reach 99 degrees Fahrenheit (37 Celsius), according to the National Weather Service.

The high in Manhattan’s Central Park may reach 95, which would tie a record for the day set in 1933, according to the weather service.

Air Conditioning

Cooling demand in the U.S. may be 25 percent above normal from tomorrow through June 15, David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in a note to clients today.

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

The department may say tomorrow that gas inventories gained 79 billion cubic feet in the week ended June 3, based on the median of 19 analyst estimates.

The five-year average stockpile increase for the week is 96 billion, according to Energy Department data. Supplies climbed 98 billion cubic feet a year earlier.

Gas fell earlier on concern production will be more than enough to meet summer power demand.

“Gas is at the top of the current trading range,” said James Williams, an economist at WTRG Economics, an energy research firm in London, Arkansas. “It will be difficult to hit $5 with rising production.”

Gas Production

Marketed gas production will average 64.61 billion cubic feet a day in 2011, up 4.5 percent from 61.83 billion produced in 2010, the Energy Department said in its monthly Short-Term Energy Outlook yesterday.

“Production continues to grow at a strong pace despite a significant decline in gas-directed drilling activity,” the department said in the report. “Growth in oil-directed drilling activity could lead to significant increases in associated natural gas production.”

Gas drilling rigs rose six to 887 last week, according to Houston-based Baker Hughes Inc. The total was down 6.3 percent from a year earlier. Oil rigs rose one to a record 959.

Gas inventories will “remain robust given higher forecast production throughout the 2011 injection season,” the Energy Department said in the report.

Gas futures volume in electronic trading on the Nymex was 328,083 as of 2:55 p.m., compared with the three-month average of 316,000. Volume was 394,838 yesterday. Open interest was 981,615 contracts. The three-month average open interest is 941,000.

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

--With assistance from Brian Sullivan in Boston and Gene Laverty in Calgary. Editors: Bill Banker, Charlotte Porter

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

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


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