Natural gas hits five-week high on heat forecasts

Natural gas rose for a fifth day to a five-week high on speculation that above-normal temperatures into mid-September will boost demand for the power plant fuel.

On the New York Mercantile Exchange, natural gas for October delivery traded at $3.630 per million British thermal units at 9:30 GMT, up 0.32% on the day. Futures rose to a five-week high of $3.652 earlier in the day, while days low stood at $3.617 per mBtu. The fuel jumped 1.7% on Thursday and extended its weekly advance to over 4.2% after adding 7.8% in the preceding two five-day periods.

Natural gas marked a fifth day of gains as weather forecasts pointed at above-normal temperatures across key U.S. consuming areas. Weather models from the U.S. Global Forecast System showed that Texas, the Northeast and parts of the Midwest will experience higher-than-usual temperatures through September 7. MDA Weather Services in Gaithersburg, Maryland, forecast that the late-August heat over the lower 48 states will start to dissipate in the East after September 2.

According to AccuWeather Inc., temperatures in Dallas on September 6 may peak at 100 degrees Fahrenheit, 8 above normal, while the high in Philadelphia on September 9 may be 4 degrees above the average.

When higher-than-normal temperatures are expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of the U.S. electricity generation. Mild temperatures have the opposite effect. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.

On Thursday, natural gas initially crumbled following EIAs weekly natural gas storage report which turned out bearish. Losses however were offset by forecasts for continuing heat over most of the U.S., thus boosting the fuels demand prospects.

According to the Energy Information Administration, U.S. natural gas storage rose by 67 billion cubic feet in the week ended August 23, 1 million above the five-year average build of 66 billion cubic feet, and surpassing last year’s 64 billion gain during the comparable week. According to a Bloomberg survey of 25 analysts, inventories were expected to rise by 62 billion cubic feet.

Total gas held in underground storage hubs equaled 3 130 billion cubic feet as of last week, 7% below last year’s 3 365 billion. Reserves however remained 1.5% above the five-year average stockpiles at 3 085 billion cubic feet.

The report also showed that stocks in the East Region rose by 49 billion cubic feet and were 107 billion below the five-year average. Inventories in the Producing Region received a net injection of 16 billion cubic feet to 978 billion, 95 billion above the five-year average.