Oct. 23 (Bloomberg) -- Natural gas futures advanced from a two-week low in New York as temperatures dropped below normal in Chicago and New York, boosting demand for the heating fuel.
Gas rose 1.1 percent as forecasters including MDA Weather Services in Gaithersburg, Maryland, predicted chilly weather across the Midwest and Northeast through Oct. 27. Temperatures in New York will slide as low as 42 degrees Fahrenheit (6 Celsius) on Oct. 27, 5 degrees below average, according to AccuWeather Inc. in State College, Pennsylvania.
“The market is factoring in the first part of winter risk with the cold weather we’re going to see in the next five to eight days,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Natural gas for November delivery increased 3.8 cents to settle at $3.619 per million British thermal units on the New York Mercantile Exchange, the first gain in three days. Trading was 2.2 percent above the 100-day average at 2:31 p.m. Futures settled at $3.581 yesterday, the lowest price since Oct. 4. Gas is up 8 percent this year.
A cold snap would boost heating demand and might help erode a stockpile surplus driven by record U.S. production from shale plays such as the Marcellus in the Northeast. About 49 percent of households use natural gas for heating, according to the Energy Information Administration, the statistical arm of the Energy Department.
“We’re getting a bounce here on the cold weather forecasts,” said Phil Flynn, a senior market analyst for Price Futures Group in Chicago.
The EIA may report tomorrow that stockpiles jumped by 82 billion cubic feet in the week ended Oct. 18, according to the median of 14 analyst estimates compiled by Bloomberg. The five- year average gain for the week is 67 billion.
“With these strong production levels and high levels of gas in storage, without sustained cold the market has trouble sustaining a rally,” McGillian said.
A supply report released yesterday showed a gain of 77 billion cubic feet to 3.654 trillion in the week ended Oct. 11. Publication was delayed because of the federal government shutdown.
U.S. inventories have advanced to record levels in each of the past four years, rising to 3.929 trillion cubic feet in November 2012. Stockpiles will probably reach 3.83 trillion cubic feet this fall before strengthening demand for heating fuels begins to draw down supplies, the EIA said in its Oct. 8 Short-Term Energy outlook.
This winter in the U.S. will be colder than the previous one, boosting heating-fuel demand, the EIA said in the report.
The discount of November to December futures narrowed 1.1 cent to 11.4 cents. November gas traded 19.9 cents below the January contract, compared with 21.7 cents yesterday.
November $3.35 puts were the most-active option in electronic trading, declining 0.1 cent to 0.2 cents per million Btu on volume of 521 at 2:53 p.m. January $3.15 puts next most- active, falling 0.1 cent to 1.8 cents on volume of 430. Puts accounted for 54 percent of trading volume. Implied volatility for at-the-money options expiring in December was 31.50 percent at 2:45 p.m., compared with 31.82 percent yesterday.
The Marcellus shale formation is driving gas production growth in the U.S., the EIA said yesterday in its first Drilling Productivity Report. Output from the region may increase by 408 million cubic feet per day, or 3.3 percent, to 12.6 billion from October to November, according to the report.
Marketed gas production may climb 1.2 percent this year to a record 70 billion cubic feet a day, the EIA said Oct. 8 in its outlook. The U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986, according to the EIA.
--Editors: Bill Banker, Richard Stubbe