Bloomberg News

Natural Gas Futures Advance on Forecasts for Colder Weather

October 25, 2011

Oct. 25 (Bloomberg) -- Natural gas futures rose for the first time in three days in New York on forecasts of colder- than-normal weather that may increase demand for the heating fuel as winter approaches.

Gas futures advanced 1.5 percent after Commodity Weather Group LLC said in its seasonal forecast yesterday that the coming U.S. winter may be the coldest in more than 10 years. Temperatures may be below-normal along the Eastern Seaboard from Oct. 30 through Nov. 3, the company said.

“We have some forecasts of early cold,” said Ed Kennedy, a trader at INTL Hencorp Futures LC in Miami. “It looks like we might have quite a severe winter, especially in the heartland of the country.”

Natural gas for November delivery gained 5.4 cents to settle at $3.658 per million British thermal units on the New York Mercantile Exchange. The futures have risen 10 percent from a year ago.

November $3.50 puts, bets that prices will fall, were the most active options in electronic trading. The puts were down 0.8 cent to 0.3 cents per million Btu on volume of 490 lots.

The price difference, or spread, between November- and December-delivery futures widened 0.4 cent to 19.4 cents.

November is expected to be 9.3 percent colder than last year, with December forecast to be 0.6 percent cooler, said Matt Rogers, CWG’s president, in his seasonal outlook.

Light Snow

Light snow may fall across northern New England and upstate New York by the end of this week, according to the National Weather Service.

The low temperature in Concord, New Hampshire, on Nov. 3 may be 26 degrees Fahrenheit (minus 3 Celsius), 5 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

Heating demand in the U.S. Northeast may be 6 percent above normal from Oct. 31 through Nov. 4, data from Weather Derivatives in Belton, Missouri, show.

About 51 percent of U.S. households use natural gas for heating, Energy Department data show.

“The 6-10 day forecast includes a solid cold region spanning from the mid-Atlantic down through Florida and is incrementally bullish for demand compared with previous forecasts,” Michael Zenker, an analyst at Barclays Capital Inc. in San Francisco, said in a note to clients dated yesterday.

The number of rigs drilling for natural gas in the U.S. declined last week, according to data from Baker Hughes Inc. The gas rig count fell by nine to 927, 3.9 percent below the level from a year earlier.

Lower 48

Gas production from the lower 48 states rose 0.1 percent in July to a record 69.48 billion cubic feet as output from shale formations in Louisiana and the Northeast rose, according to department data going back to 2005.

Production climbed from a revised 69.38 billion cubic feet a day in June, the department’s Energy Information Administration said in a monthly report known as EIA-914, released Sept. 29.

Natural gas futures volume in electronic trading on the Nymex was 242,011 as of 2:39 p.m., compared with the three-month average of 310,000. Volume was 213,789 yesterday. Open interest was 989,099 contracts, compared with the three-month average of 971,000. 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;

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


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