Bloomberg News

Natural Gas Climbs as Forecasters Predict Return of Heat Wave

June 10, 2011

June 10 (Bloomberg) -- Natural gas advanced in New York, posting a third straight weekly gain, on forecasts for a wave of hot weather from the Midwest to the Atlantic Coast this month that would boost demand from power plants.

Gas futures climbed 1.8 percent after companies including Commodity Weather Group in Bethesda, Maryland, predicted above- normal temperatures in parts of the Midwest, South and mid- Atlantic from June 20 through June 24. Temperatures may be about 5 degrees above normal in Texas, the forecaster said in a note to clients today.

“The heat that we’ve seen so far, starting as early as it has this summer, has been disconcerting,” said Carl Neill, an energy consultant at Risk Management Inc. in Atlanta. “We’re at the upper end of a trading range, but we could break through that range and continue higher.”

Natural gas for July delivery rose 8.3 cents to settle at $4.757 per million British thermal units on the New York Mercantile Exchange. Prices jumped 1.1 percent this week and have gained 8 percent this year.

Gas reached a 10-month intraday high of $4.983 per million Btu yesterday amid forecasts of record heat in the eastern U.S. The futures later declined after a government report showed a larger-than-expected increase in U.S. inventories for last week.

Cheap Gas

Traders may perceive natural gas as cheap relative to other energy commodities after yesterday’s 3.6 percent decline, said Rich Ilczyszyn, a senior market strategist at Lind-Waldock, a broker in Chicago.

“The market might have gotten a little ahead of itself with the selling yesterday,” Ilczyszyn said. “Traders may be taking a look at gas if they want energy exposure.”

The number of gas drilling rigs dropped for the first time in three weeks, falling eight to 879, a Baker Hughes Inc. report today showed. The gas rig count was down 7.9 percent from a year ago, the Houston-based company said.

Warmer-than-normal weather is likely in the South and parts of the Midwest from June 15 through June 19, according to Commodity Weather Group. The above-normal temperatures may increase the demand for natural gas to produce electricity for air conditioners.

The high temperature in New York on June 20 may be 85 degrees Fahrenheit (29 Celsius), 5 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The high in Dallas may be 96, 3 degrees above normal.

Air Conditioning

Cooling demand in the U.S. may be 15 percent above normal from June 16 through June 20, said David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, in a note to clients today.

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

At least one computer forecast model is showing a storm developing in the far southern Gulf of Mexico between June 20 and June 24, Matt Rogers, Commodity Weather Group’s president, said in the note to clients today. Other models show the region remaining quiet.

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

Gas futures volume in electronic trading on the Nymex was 259,269 as of 2:43 p.m., compared with the three-month average of 320,000. Volume was a record 553,738 yesterday. Open interest was 1,001,658 contracts. The three-month average open interest is 942,000.

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

--Editors: Bill Banker, Richard Stubbe

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

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


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