Natural Gas Advances to Two-Week High on Warmer August Outlook

Aug 05, 2014 4:18 pm ET

Aug. 5 (Bloomberg) -- Natural gas futures climbed to a two- week high in New York on speculation that seasonal August weather will stoke demand for the power-plant fuel.

Temperatures will be normal across the East Coast and South over the next 15 days as heat builds in the western states, said Commodity Weather Group LLC. Gas prices have dropped 20 percent from the high on June 16 as cool weather helped stockpiles rebound at a record pace from an 11-year low in March.

“Simply the prospect of more normal weather ahead when we look at next week seems to be adding support to the market,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “This certainly does not represent an important trend change in that summer selloff; it’s more of a lull in the selling.”

Natural gas for September delivery rose 6.3 cents, or 1.6 percent, to $3.897 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 18. Volume for all futures traded was 23 percent below the 100-day average at 2:34 p.m. Prices are up 17 percent from a year ago.

“The build-up in warming mid- to late this week for Texas got a bit stronger on the latest update, with more upper 90s to near 100 temperatures for Dallas stretching into the start of next week,” Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in a note to clients. Readings will be in the middle to upper 90s (35 to 39 Celsius) in Houston.

Texas Heat

The projected high in Dallas on Aug. 8 of 100 degrees will be 3 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania. Washington’s reading that day will be 1 lower than average at 86 degrees.

“It really feels like this glancing blow of warm temperatures is the season’s last gasp,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The shorter days and inexorable march of the calendar continues to work against the possibility of sustained cooling demand that could impact storage levels and the road to fulsome storage levels.”

Gas stockpiles in the lower 48 states probably expanded by 86 billion cubic feet last week to outpace the five-year average for the period for the 16th straight week, based on the median of five analyst estimates compiled by Bloomberg. Estimates ranged from gains of 83 billion to 91 billion. The five-year norm for the seven days is 49 billion.

Inventories rose 1.485 trillion cubic feet from the March low to 2.307 trillion in the week ended July 25, according to the U.S. Energy Information Administration. It’s the fastest pace of injections during the first 17 weeks of the storage refill season, which runs from April through October, in government data going back to 1994.

Viswanath said the pace of fuel stockpiling will increase as the August heat recedes.

“We still maintain our long-term view that the prices will range for the balance of the season from $3.50 to $3.75,” she said.