Natural Gas Caps First Monthly Advance Since April on U.S. Heat

Aug 29, 2014 3:39 pm ET

Aug. 29 (Bloomberg) -- Natural gas futures capped the first monthly gain since April in New York as a burst of late-summer heat spurred power-plant demand, slowing stockpiling efforts.

MDA Weather Services predicted above-normal temperatures from Texas to the Northeast through the first week of September. Gas advanced 5.8 percent in August as the flow of the fuel into storage caverns dropped to a 16-week low last week, government data show.

“There’s been enough extremely hot weather in gas- consuming states to throttle back those significant injections,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “We drifted up this week; it may be profit-taking.”

Natural gas for October delivery rose 2.1 cents, or 0.5 percent, to $4.065 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 16. Volume for all futures traded was 27 percent below the 100-day average at 3:13 p.m. The futures were up 5.9 percent this week, posting the fourth gain in five weeks, and are up 12 percent from a year ago.

Throughout the floor trading session, prices moved between gains and losses around the 50-day moving average, which was at $4.035 today. Prices settled above that technical level for the second day. Yesterday was the first time the futures moved above it in more than two months. The market will be closed on Sept. 1 for the U.S. Labor Day holiday.

Weather Outlook

Unusually hot weather will linger in the Southeast from Sept. 8 through Sept. 12, said MDA in Gaithersburg, Maryland.

The high in Manhattan on Sept. 2 may reach 91 degrees Fahrenheit (33 Celsius), 11 above normal, while Dallas may be 3 higher than usual at 96, according to AccuWeather Inc. in State College, Pennsylvania. Dallas highs topped 100 degrees for six straight days through Aug. 26. Power plants account for 31 percent of gas consumption.

Gas deliveries to power plants have averaged 29.2 billion cubic feet a day as of 2:21 p.m. since Aug. 22, up 0.4 percent from the previous week, data show from LCI Energy Insight, an El Paso, Texas based consulting and analysis company.

“The bearish factor is we are progressing into the fall season, so the threat of heat to run up electric power generation is going to start to diminish,” Saal said.

Gas inventories rose by 75 billion cubic feet in the week ended Aug. 22 to 2.63 trillion, the smallest gain since May 2, according to a U.S. Energy Information Administration report yesterday. Lower August injections follow nine gains that topped 100 billion in May, June and July.

Inventory Rebound

Production soaring to an all-time high for the fourth straight year and a mild summer are enabling stockpiles to rebound at a record pace after dropping to an 11-year low in March. This June through August will be the coolest for those months, factoring in population and energy demand, since 2009, according to Commodity Weather Group LLC in Bethesda, Maryland.

Storage injections “may not reach 100 but they are still going to be pretty large in the next couple of weeks,” which may boost stockpiles to 3.55 trillion or 3.6 trillion before the next peak heating-demand season, said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston.

Gross output in the lower 48 dates rose 0.6 percent in June to 78.67 billion cubic feet a day as Texas and New Mexico brought new wells online, according to the monthly EIA-914 report released today. The “other states” category, which includes the Marcellus shale in the Northeast, gained 1.3 percent to 30.83 billion per day.

“While the overall supply and demand is becoming bearish, it’s certainly not bullish,” Cooper said.