Natural gas futures climbed to a five-week high in New York on concern that storms would disrupt supplies amid hot weather that may stoke demand for the power-plant fuel.
Gas gained 2.4 percent after the National Hurricane Center said low-pressure systems were producing showers and thunderstorms over the Lesser Antilles and Mexico’s Bay of Campeche. MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures in the central U.S. through Sept. 17.
“These storms are definitely providing a little extra support for the market because there’s concern that they could move into the Gulf,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “It’s pretty warm in the Midwest and the hot temperatures are still boosting cooling demand.”
Natural gas for October delivery rose 8.5 cents to $3.666 per million British thermal units at on the New York Mercantile Exchange, the highest settlement since July 24. Trading volume was 3.7 percent above the average at 3:02 p.m. Prices are up 9.4 percent this year.
The discount of October to November futures narrowed 1.1 cents to 9.2 cents. October gas traded 31.7 cents below the January contract, compared with 34.5 cents on Aug. 30.
November $3 puts were the most active options in electronic trading. They were 0.3 cent lower at 0.7 cent per million Btu on volume of 941 at 3:08 p.m. Puts accounted for 56 percent of trading volume. Implied volatility for October at-the-money options was 31.64 percent at 3 p.m., compared with 30.42 percent on Aug. 30.
There was no floor trading yesterday because of the U.S. Labor Day holiday, and yesterday’s electronic transactions were booked today for settlement purposes.
The area of low pressure in the Bay of Campeche has a 20 percent chance of becoming a tropical system in the next five days, the National Hurricane Center in Miami said in a 2 p.m. outlook. The system in the eastern Caribbean near Dominica has a 50 percent chance of developing over the same period.
The storms “serve to remind the market that conditions are ripe for a hurricane to develop in the Gulf,” Aaron Calder, an analyst at Gelber & Associates in Houston, said in a note to clients today.
The Gulf will account for 5.7 percent of U.S. gas production this year, EIA data show. Sept. 10 is the statistical peak of the Atlantic hurricane season, according to the hurricane center.
The high in Chicago on Sept. 8 may be 82 degrees Fahrenheit (28 Celsius), 4 higher than average, according to AccuWeather Inc. in State College, Pennsylvania. Houston temperatures may reach 95 degrees Fahrenheit, 5 above average, AccuWeather data show.
Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.
Gas inventories totaled 3.13 trillion cubic feet in the week ended Aug. 23, 1.5 percent above the five-year average and 7 percent below last year’s supplies, EIA data show.
PVR Partners LP (PVR:US) is partnering with Hess Corp. (HES:US) to develop a 45-mile natural gas pipeline and associated gathering lines to transport supplies from the Utica shale formation in eastern Ohio, PVR said in a statement today.
The line will have a minimum capacity of 450 million cubic feet a day and may begin operations in late 2013, PVR said.
The U.S. lowered its 2013 natural gas production estimate to 69.89 billion cubic feet a day from last month’s forecast of 69.96 billion, the EIA said Aug. 6 in its Short-Term Energy Outlook. Output may rise 1 percent from a year ago to a record as onshore supplies climb.
Inventories may reach 3.8 trillion cubic feet at the end of October, about 130 billion below last year’s level for the time of year, the EIA said.
U.S. approval each year of 1.5 billion to 2 billion cubic feet a day of liquefied natural gas export capacity would be “palatable” for consumers, according to analysts at Sanford C. Bernstein & Co.
“We believe this level represents an amount of shale gas production growth that can be achieved with a reasonable, but not too high, price signal,” analysts including Bob Brackett said in a report published today.
The exports will raise gas prices as much as $1.02 per 1,000 standard cubic feet from 2010 levels, they said, citing estimates in an Energy Department-commissioned study.
The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.
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