Natural Gas Caps Weekly Gain as Heat May Return to East Coast

Aug 08, 2014 4:04 pm ET

Aug. 8 (Bloomberg) -- Natural gas futures capped the biggest weekly gain since February as forecasts showed heat returning to the eastern U.S., spurring demand for power generation after weeks of mild weather.

Temperatures may be above normal on the East Coast from Aug. 18 to Aug. 22, according to MDA Weather Services in Gaithersburg, Maryland. The high in New York on Aug. 21 will be 93 degrees Fahrenheit (34 Celsius), 11 higher than average, AccuWeather Inc. predicted. Gas has declined 13 percent since June 20 amid relatively cool summer weather.

“We’re seeing a pickup in heat and cooling demand, and that’s encouraging some buying today,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “A lot of traders are perceiving value at these prices, which is giving the market some support heading into the weekend.”

Natural gas for September delivery rose 8.6 cents, or 2.2 percent, to $3.962 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 16. Volume for all futures traded was 17 percent above the 100-day average at 2:43 p.m. Prices are up 20 percent from a year ago and gained 4.3 percent this week, the biggest weekly increase since the period ended Feb. 21.

“Though the latter half of the near-term weather outlook looks less cool, it is the weather to come over the rest of the summer that poses upside risks, especially if temperatures are closer to seasonal norms,” Christopher Louney, an analyst at Barclays Plc in New York, said in a note to clients today.

The high in Washington on Aug. 21 may be 91 degrees, 5 more than usual, according to AccuWeather in State College, Pennsylvania.

Gas Consumption

Power plants account for 31 percent of gas consumption, data from the U.S. Energy Information Administration show. The agency is the Energy Department’s statistical arm.

Gas deliveries to electricity generators jumped 29 percent since June 21 to 29.9 billion cubic feet yesterday, according to LCI Energy Insight in El Paso, Texas. Inventories were 20 percent below the five-year average as of Aug. 1, the biggest deficit for the time of year since at least 2005.

The EIA estimates that even with production at a record, gas stockpiles will reach 3.431 trillion cubic feet by the end of October, which would be the lowest start to the peak heating season since 2008.

Fuel Use

Gas demand may climb 1.5 percent this year to 72.37 billion cubic feet a day, led by industrial users, the EIA said July 8 in its monthly Short-Term Energy Outlook. The agency increased its estimate for average 2014 natural gas prices to $4.77 per million Btu from $4.74 in the June report.

Goldman Sachs Group Inc. lowered its forecast for average natural gas prices in the fourth quarter of this year and first quarter of 2015 to $4 per million Btu from $4.25, Brian Singer, a managing director at the bank in New York, said in a note to clients today.

“A combination of mild summer weather and strong supply growth has eliminated the need for Henry Hub gas futures to rise above our $4.00-$4.50/mmBtu range,” Singer said.