Bloomberg News

Natural Gas Gains First Day in Six on Hot Weather Forecasts

August 01, 2011

Aug. 1 (Bloomberg) -- Natural gas futures rose for the first time in six days as forecasts for hotter-than-normal weather in the U.S. East, Midwest and South signaled stronger demand from power plants.

Gas rebounded from a three-week low as companies including Commodity Weather Group LLC in Bethesda, Maryland, said temperatures will be above-normal through Aug. 10. Prices dropped 5.8 percent last week after government data showed U.S. inventories gained more than expected.

“We are going to continue to see prices kind of take direction from the short-term weather outlook,” said Eric Bickel, an analyst at Summit Energy Services Inc. in Louisville, Kentucky. “Last week’s drop created a little buying opportunity.”

Natural gas for September delivery increased 4.3 cents, or 1 percent, to settle at $4.188 per million British thermal units on the New York Mercantile Exchange. Prices are down 4.9 percent this year.

September $3 puts, bets that prices will fall, were the most active options in electronic trading as of 3:15 p.m. The puts were unchanged at 0.1 cent per million Btu on volume of 500 lots.

The price difference, or spread, between futures for delivery in October 2011 and January 2012 widened for a fifth day, gaining 1 cent to 41.7 cents. Gas futures often reach a seasonal low in October, when mild weather reduces in demand, before recovering in the winter.

Air Conditioning

Heat will advance into the Midwest and East this week and intermittently next week, Matt Rogers, a forecaster with Commodity Weather Group LLC in Bethesda, Maryland, said in a note to clients.

Dallas will have a high of 108 degrees Fahrenheit (42 Celsius) tomorrow, 11 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania. New York will reach a high of 90, 6 degrees above normal.

Cooling demand in the U.S. may be 28 percent above normal from tomorrow through Aug. 8, according to Weather Derivatives in Belton, Missouri.

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

Scheduled natural gas deliveries to U.S. electricity generators climbed for the first time in four days as shipments to Texas increased.

A sample of deliveries to power plants in the U.S. and Canada shows shipments rose 0.6 percent to 17.3 million dekatherms (16.8 billion cubic feet), according to data compiled by Bloomberg. Schedules for 594 of 743 pipelines had been reported as of 2:55 p.m.

Shipments to a region that includes most of Texas gained 6.1 percent to 2.21 million dekatherms, with 139 out of 163 pipelines reporting.

Tropical Weather

An area of showers and thunderstorms extending eastward from the Lesser Antilles has an 80 percent chance of becoming a tropical cyclone within the next 48 hours, the National Hurricane Center said in an update at 2 p.m. local time. The Gulf of Mexico accounts for about 7 percent of gross U.S. gas output, according to the Energy Department.

“This storm will be worth keeping an eye on this week,” Canaccord Genuity analysts including Cameron Horwitz in Houston said in a note to clients today.

Marketed gas production in the U.S. will rise 5.8 percent from 2010, the Energy Department said in its monthly Short-Term Energy Outlook, released July 12 in Washington. Output in the lower 48 states will average 58.91 billion, up 7.8 percent from last year, according to the report from the department’s Energy Information Administration.

Production Gains

Rising output has led to larger increases in gas stockpiles than analysts have predicted. Gas inventories gained 43 billion cubic feet in the week ended July 22 to 2.714 trillion cubic feet, the Energy Department reported last week. The median of analyst estimates compiled by Bloomberg showed an expected increase of 38 billion.

Stockpiles were down 6.9 percent from a year earlier, narrower than the previous week’s 7.4 percent.

Natural gas futures volume in electronic trading on the Nymex was 170,719 as of 2:37 p.m., compared with the three-month average of 287,000. Volume was 190,494 on July 29. Open interest was 965,324 contracts. The three-month average open interest is 971,000. 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: Moming Zhou in New York at Mzhou29@bloomberg.net; 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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