Natural Gas Futures Advance on Outlook for Late Summer Heat

Aug 21, 2014 3:53 pm ET

Aug. 21 (Bloomberg) -- Natural gas futures advanced for the third time this week in New York on speculation that late summer heat will stoke demand for the power-plant fuel.

Above-normal temperatures will sweep across the Midwest to the Southeast over the next five days, according to Commodity Weather Group LLC. The forecast was warmer for the regions than yesterday’s models showed. Gas inventories have rebounded at a record pace since March as unusually mild weather in the eastern and central states reduced air-conditioning demand.

“Just looking at the three- to five-day span, you are going to have intense temperatures,” said John Woods, president of JJ Woods Associates and a Nymex floor trader. “Right now, it’s a realization that this forecast really could happen. It’s essentially been a relatively mild August.”

Natural gas for September delivery rose 6.6 cents, or 1.7 percent, to $3.889 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Aug. 14. Prices are up 12 percent from a year ago. Gas dropped 1 percent in earlier trading after a government report showed a bigger- than-forecast increase in U.S. inventories.

Forecasting models about the timing of a cool front moving into the lower 48 states next week vary because of the possibility of tropical activity, Matt Rogers, president of Commodity Weather in Bethesda, Maryland, wrote in a note to clients today. Above-normal temperatures in the East through this week will give way to seasonal readings across most of the U.S. from Aug. 26 through Sept. 4.

Weather Outlook

The high in St. Louis tomorrow may be 96 degrees Fahrenheit (36 Celsius), 9 above normal, before dropping five days later to a seasonal 86, according to AccuWeather Inc. in State College, Pennsylvania. Power plants account for 31 percent of gas demand, U.S. Energy Information Administration data show.

The National Hurricane Center said an area of “shower and thunderstorm activity” east of the Windward Islands has a 70 percent chance of becoming a tropical system in the next five days.

Environmental conditions are expected to be conducive for the Atlantic weather system, about 275 miles east of Guadeloupe, to become a tropical depression or storm as it moves west- northwest at about 20 miles (32 kilometers) per hour, the hurricane center said in a 2 p.m. notice in Miami.

“Usually the first storm threat, even though it’s still pretty far out in the Atlantic, is always viewed as a temporary bullish factor,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.

Stockpile Gain

Gas inventories rose 88 billion cubic feet in the seven days ended Aug. 15 to 2.555 trillion, the EIA said today in a weekly report. Analyst estimates compiled by Bloomberg showed an expected gain of 84 billion. The increase surpassed the five- year average for the 18th consecutive week.

Storage injections have expanded 1.733 trillion cubic feet in the past 20 weeks, a record pace for the period in EIA data going back to 1994. A deficit to the five-year average narrowed to 17.3 percent from 55 percent in March, when supplies fell to an 11-year low at the end of a frigid winter.

The EIA expects stockpiles to reach 3.463 trillion by the end of October, which would be the lowest level for the time of year since 2008. To get there, the next 11 inventory reports will need to show an average increase of 83 billion cubic feet, versus the five-year average gain for the period of 67 billion.

Tim Rezvan, an analyst with Stern, Agee & Leach in New York, said that 3.5 trillion “is looking like a reasonable trough number,” based on estimates that the stockpiling season will last into November.

“With a likely 12 more weeks of natural gas injections into storage until estimated peak gas in storage in early November, we are running out of weeks for above-trend gas injections to create a glut of gas in storage,” Rezvan said in a note to clients today.

--With assistance from Brian K. Sullivan in Boston and Christine Buurma in New York.