Natural gas futures climb as hot weather to stoke power demand

NEW YORK (Bloomberg) -- Natural gas futures advanced as forecasts for unusually hot weather signaled increased demand for the power-plant fuel, limiting supply gains.

Mild weather in the Northeast, mid-Atlantic and Midwest this week will give way to above-normal temperatures Aug. 15 through Aug. 24, said MDA Weather Services. Manhattan’s high Tuesday may be 80 degrees F (27 degrees C), 3 below normal, before jumping eight days later to 90, AccuWeather Inc. said on its website.

A government report last week showed the smallest gain in gas storage levels in almost four months after a surge of heat in the biggest gas-consuming regions of the U.S. More hot weather ahead is limiting concerns about ending the stockpiling season with a burgeoning surplus.

“The forecasts are back for more above-normal temperatures in mostly gas-consuming regions and the market is reacting accordingly,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “If we continue to get these below-average storage injections, that provides a little bit of stimulus here in the prices.”

Natural gas for September delivery rose 2.8 cents, or 1%, to $2.826 per million British thermal units at 11:13 a.m. on the New York Mercantile Exchange. Volume for all futures traded was 2% below the 100-day average.

Inventory Gains

The pace of storage gain slowed in mid-July as hotter weather boosted demand for the fuel to run air conditioners.

Gas inventories rose by 32 BBcfg to 2.912 trillion in the week ended July 31, the lowest storage injection since the start of April, U.S. Energy Information Administration data show.

Supplies probably expanded by another 48 billion last week, in line with the five-year average, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients.

Speculators reduced net-short positions, or bearish bets, on four gas contracts by 8.2% to 35,564 futures equivalents in the week ended Aug. 4, a 10-week low, U.S. Commodity Futures Tradition Commission data show.

“The natural gas market is considering the upside in Monday trade, supported by enough warmer-than-normal temperatures in the forecast to limit storage injections over the next few weeks to five-year average, or moderately below- average, levels,” said Evans.

“Although the market has been reluctant to credit this as a stronger-than-expected result, we continue to see some potential for a rally back above the $3 market in the weeks ahead,” he said.