Natural Gas Futures Rise as Warmer U.S. Weather Stokes Fuel Use

May 20, 2014 3:51 pm ET

May 20 (Bloomberg) -- Natural gas futures advanced for the fourth time in five days in New York on speculation that unusually warm U.S. weather will spur demand from power plants.

Gas rose 1.8 percent as MDA Weather Services forecast above-normal temperatures across most of the lower 48 states through June 3. U.S. stockpiles were 45 percent below the five- year average in the week ended May 9, the biggest deficit for the time of time year in government data going back to 2006.

“As long as we see signs of seasonal demand picking up, the tight fundamentals are going to provide an upward bias in the market,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Natural gas for June delivery gained 8.2 cents to $4.552 per million British thermal units on the New York Mercantile Exchange, the highest settlement since May 8. Gas is up 7.6 percent this year.

Forecasts turned warmer for the eastern two-thirds of the U.S. for next week, and some of the highest deviations from the norm will take place in the Midwest, said MDA in Gaithersburg, Maryland.

The high temperature in Cleveland on May 28 will be 82 degrees Fahrenheit (28 Celsius), 10 above normal, and Washington will climb to 7 higher than average at 86 degrees, according to AccuWeather Inc. in State College, Pennsylvania. The next day, the reading in Dallas will rise to 91, 3 above average.

Power Plants

Electricity generators consume 31 percent of gas supplies, according to the U.S. Energy Information Administration. Demand peaks in the hot-weather months as air-conditioner use increases.

“With the calendar turning to June, there should be some real heat visited upon parts of the country,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “Already, parts of the Midwest and West have baked. It seems almost cruel after the polar-vortex winter.”

Gas inventories probably rose 103 billion cubic feet last week, based on the median of six analyst estimates compiled by Bloomberg. Estimates ranged from gains of 101 billion to 109 billion. The five-year average stockpile addition for the period is 90 billion.

Inventory Report

Stockpiles expanded by 105 billion cubic feet in the week ended May 9 to 1.16 trillion. The “implied flow” into storage caverns was 97 billion after some supplies were reclassified from base gas, which is used to maintain pressure, to working gas, according to the EIA.

A record amount of the fuel needs to be added to inventories to prepare for the next heating season, after supplies fell to an 11-year low of 822 billion cubic feet in March. The EIA estimates record production will boost stockpiles to 3.405 trillion by the end of October, which would be the lowest level for the time of the year since 2008, according to its May 6 Short-Term Energy Outlook.

Daily marketed gas output in 2014 will expand for the ninth straight year, reaching an all-time high of 72.26 billion cubic feet, as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA said.