Natural Gas Climbs to Six-Week High as Heat Limits Supply Gain

Aug 28, 2014 3:37 pm ET

Aug. 28 (Bloomberg) -- Natural gas futures advanced to a six-week high in New York as a burst of late-summer heat slowed stockpiling of the power-plant fuel.

Above-normal temperatures will sweep from Texas to the Northeast through next week, said MDA Weather Services. A government report showed gas inventories expanded last week at the lowest rate since May 2 after hot weather across much of the central U.S.

“We continue to be driven predominantly by near-term weather forecasts, and also today we had a smaller-than-expected storage injection,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Technically it looks like we are breaking out and we have some momentum as long as we don’t come in, especially after the weekend, and we see a flip-flop in the forecast.”

Natural gas for October delivery rose 4.1 cents, or 1 percent, to $4.044 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 16. Volume for all futures traded was 20 percent above the 100-day average at 3:11 p.m. The futures are up 13 percent from a year ago.

Futures rebounded from an afternoon slump after pushing through recent highs and trading above the 50-day moving average, McGillian said. Prices topped the moving average, which was at $4.046 per million Btu today, for the first time since June.

Inventory Report

Gas inventories in the lower 48 states rose 75 billion cubic feet to 2.63 trillion in the week ended Aug. 22, according to the U.S. Energy Information Administration. Analyst estimates and a survey of Bloomberg users forecast a gain of 77 billion. Supplies had risen by 88 billion the previous week. The five- year average for the period is a gain of 58 billion.

Stockpiles have risen faster than the five-year average for 19 straight weeks, narrowing a deficit to the historic norm to 16.5 percent from 17.3 percent the previous week.

Supplies were 15.7 percent below year-earlier inventories, compared with 16.4 percent in last week’s report.

“You had some really good heat in Chicago and that’s also going to impact next week’s number,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “The market seems to be turning higher at this point. The bears have had an excellent summer.”

Fuel Demand

Power plants account for 31 percent of gas demand, EIA data show. The agency is the Energy Department’s statistical arm.

Gas deliveries to U.S. power generators rose to 31.4 billion cubic feet on Aug. 21, the most for any day since Sept. 12, 2013, according to LCI Energy Insight, an El Paso, Texas- based consulting and analysis company.

Unusually hot weather may linger in the eastern states from Sept. 6 through Sept. 10, said MDA in Gaithersburg, Maryland. Commodity Weather Group LLC sees the heat next week giving way to more seasonal readings across the lower 48 states during that period.

The high in Manhattan on Sept. 2 will be 88 degrees Fahrenheit (31 Celsius), 8 above normal, before dropping a week later to 74, 4 lower than average, said AccuWeather Inc. in State College, Pennsylvania.

“We are getting a little bit of a weather spike for support,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’ve got a multiweek high; this is progress as far as the bulls are concerned.”