Aug. 19 (Bloomberg) -- Natural gas futures climbed to a three-week high in New York on speculation that late August heat will stoke demand for the power-plant fuel.
Gas rose 2.8 percent, the biggest one-day gain in a month, as forecasters including MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures from the Northeast to the West Coast through Sept. 2. Prices rose 11 percent from a five-month intraday low on Aug. 8 on predictions for a warmer end to the month following an unusually mild start.
“The return to normal weather and above-normal in certain areas is supportive,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “You are going to find buyers come here in at these perceived low prices. What helped the rally is you had support around the $3.20-$3.25 area.”
Natural gas for September delivery gained 9.5 cents to $3.463 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since July 26. Trading volume was 0.7 percent below the 100-day average at 2:55 p.m. Futures are up 3.3 percent this year.
The discount of September to October futures narrowed 0.1 cent to 2.4 cents. October gas traded 38.9 cents below the January contract, compared with 39.5 cents on Aug. 16.
September $3.20 puts were the most active options in electronic trading. They were 1.2 cents lower at 0.4 cent per million Btu on volume of 942 at 3:07 p.m. Puts accounted for 63 percent of trading volume. Implied volatility for at-the-money options expiring in September was 32.81 percent, compared with 30.91 percent on Aug. 16.
Temperatures in the Midwest probably will linger above normal until the start of September, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. That region and the northern Great Plains may be 3 to 8 degrees Fahrenheit (1.7 to 4.4 Celsius) warmer than usual from Aug. 24 to Aug. 28.
Power plants account for 32 percent of U.S. gas use, according to data from the Energy Information Administration, the statistical arm of the Energy Department.
Gas prices rose 4.3 percent last week, the first gain in four weeks, following a smaller increase in U.S. stockpiles than expected.
Inventories added 65 billion cubic feet to 3.006 trillion in the week ended Aug. 9, the EIA said last week. Analyst estimates compiled by Bloomberg predicted a gain of 70 billion. The five-year average increase for the period was 42 billion.
A supply surplus to the average widened to 1.5 percent from 0.7 percent the previous week while a deficit versus year- earlier levels narrowed to 7.7 percent from 9.2 percent.
Stockpiles will end October at 3.86 trillion cubic feet, roughly in line with the previous three years, as “disappointing gas power demand and supply creep have pushed gas prices back to February 2013 levels,” Adam Longson, an analyst with Morgan Stanley in New York, said in a note to clients today.
Approximately 1.2 billion cubic feet a day of additional processing capacity is expected to come online in the fourth quarter in the Marcellus and Utica shale deposits in the Northeast, Longson said. He expects gas prices to average $3.42 per million Btu in the third quarter and $3.69 during the final three months of the year.
Gas production will expand for the sixth consecutive year as drilling technologies, such as hydraulic fracturing, or fracking, have made it more economic to tap fuel trapped in shale rock. Output will increase 1 percent to average 69.89 billion cubic feet a day, the EIA said Aug. 6 in its Short-Term Energy outlook.
--With assistance from Brian K. Sullivan in Boston. Editors: Charlotte Porter, Richard Stubbe