Natural gas extends gains on warm weather outlook

Natural gas futures rose for a fifth day in six as weather forecasters continued to predict warmer-than-average temperatures across key consuming areas, thus boosting the power plant fuels demand prospects.

On the New York Mercantile Exchange, natural gas for October delivery rose to $3.667 per million British thermal units by 9:15 GMT, up 2.4% on the day. Futures rose to a days high of $3.675 per mBtu in the Asian session, while days low stood at $3.657. The contract is up 1.65% on the week so far after closing the preceding five-day period 3.6% higher.

Natural gas extended gains on Tuesday as weather forecasting models continued to point at higher-than-usual temperatures. According to AccuWeather Inc, the central and western parts of the U.S. will experience above-average temperatures between September 2 and September 11. 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.

Market players will be keeping a close eye on this week’s EIA U.S. natural gas storage data. Early injection estimates range between 45 billion and 53 billion cubic feet, compared to the five-year average build of 60 billion. During the comparable week last year, natural gas stockpiles rose by 33 billion cubic feet.

Last Thursday, the Energy Information Administration reported that U.S. natural gas storage surged 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.