Natural gas futures pare weekly decline on colder short-term forecast

Natural gas rose for a second day as weather forecasting models predicted below-average temperatures through the end of the week in key U.S. consuming areas, boosting demand prospects. Expectations for moderating temperatures in the following ten days however limited gains.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.495 per million British thermal units at 12:43 GMT, up 0.85% on the day. Prices held in range between days high and low of $3.497 and $3.454 per mBtu. The power-station fuel added 1.5% on Tuesday and further trimmed its weekly decline to less than 0.7% on Wednesday.

Natural gas pared weekly losses on forecasts for below-average temperatures in key U.S. consuming areas throughout the week, which would stoke electricity demand. MDA Weather Services in Gaithersburg, Maryland, predicted below-normal readings across eastern U.S. and in parts of the Midwest through November 9. According to AccuWeather Inc., temperatures in Boston on November 8 may bottom at 36 degrees Fahrenheit, 4 below average, while the low in Cleveland may be 35 degrees Fahrenheit, 7 below normal.

When cool 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 U.S. electricity generation. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

Gains however are expected to be short-lived as extended weather forecasts called for moderating temperatures next week. According to Commodity Weather Group LLC in Bethesda, Maryland, readings in the eastern half of the U.S. will be average or above-average between November 9 and November 19. AccuWeather Inc. reported yesterday that temperatures in New York on November 17 might bottom at 43 degrees Fahrenheit, 2 above usual, while the low in Chicago may be 43 degrees Fahrenheit, 9 above normal.

Market players will also be keeping a close watch to this week’s U.S. inventories data provided by the Energy Information Administration. Early injections estimates for last week’s build range between 33 billion and 45 billion cubic feet, compared to the five-year average gain of 36 billion and last year’s 27 billion cubic feet increase during the comparable week.

The Energy Information Administration said last Thursday that U.S. natural gas stockpiles added 38 billion cubic feet in the week ended October 25, well below the five-year average gain of 57 billion cubic feet and last year’s 66 billion increase during the comparable period. Total gas held in underground U.S. storage hubs now equaled 3.779 trillion cubic feet, 3.1% below last year’s 3.899 trillion. The surplus over the five-year average level of supplies narrowed by 0.5% to 1.6%.