Natural gas hits 3-week high on cold weather outlook

Natural gas rose more than 2% on Thursday after weather forecasters predicted below-normal temperatures in key U.S. consuming areas, boosting the power-station fuels demand prospects.

On the New York Mercantile Exchange, natural gas for delivery in November rose by 1.83% to $3.747 per million British thermal units at 13:51 GMT. Prices surged to a session high of $3.780 per mBtu earlier in the day, the strongest level since September 17, while days low stood at $3.683. The fuel slipped 0.8% on Wednesday, snapping four straight days of gains, but extended its weekly advance to 6.7% on Thursday.

Futures continued to advance amid forecasts for colder than usual weather in key U.S. consuming areas. MDA Weather Services in Gaithersburg, Maryland, said it expects below-average temperatures predicted in the central U.S. next week to sweep into the Northeast between October 20 and October 24.

When cold weather is 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. Consumption usually declines in autumn before picking up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 50% of U.S. households use gas for heating.

Market players however eyed EIAs upcoming weekly U.S. natural gas inventories report, due at 14:30 GMT. Early injection estimates for this week’s build data stand at 96 billion cubic feet, compared to the five-year average increase of 84 billion cubic feet. During the comparable week last year, U.S. natural gas inventories rose by 73 billion cubic feet.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “We are knocking on the primary demand season of the year so the market is going to have firmness to it. We are looking for an above-average storage injection. If the market gets that, we might get a bit of a pullback.”

The Energy Information Administration reported last week that U.S. gas stockpiles rose by 101 billion cubic feet in the week ended September 27, underperforming analysts’ projections for a surge in the range between 82 and 100 billion cubic feet. The build was also well above last year’s 77 billion gain during the comparable week and the five-year average increase of 82 billion cubic feet.

Total gas held in underground U.S. storage hubs equaled 3.487 trillion cubic feet, which was 4.3% below last year’s inventories of 3.642 trillion. The surplus over the five-year average stocks of 3.438 trillion cubic feet widened to 1.4% after rising to 0.9% in the preceding week.