Natural gas near 4-month high on cooler weather outlook

Natural gas surged to the highest since June as weather forecasters predicted colder than average weather in key U.S. consuming areas, boosting demand prospects for the power-station fuel.

On the New York Mercantile Exchange, natural gas futures for November settlement rose by 1.54% to $3.834 per million British thermal units at 9:46 GMT. Prices held in range between session high of $3.854, the strongest level since June 20, while days low stood at $3.822 per mBtu. The power-plant fuel rose by 1.3% on Friday and settled the week 7.8% higher, offsetting the previous two weeks combined 4.8% decline. Prices have gained 14% this year.

Gas extended its advance after it settled the highest in three months on Friday as weather forecasting models continued to predict colder-than-usual weather in key U.S. consuming areas. Data by the National Weather Service showed that below-average temperatures were expected from the Great Lakes to Rocky Mountains between October 19 and October 23.

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 picks 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.

The Energy Information Administration said last Thursday that U.S. natural gas inventories rose by 90 billion cubic feet in the week ended October 4, compared to the five-year average build of 84 billion and last weak’s increase of 73 billion cubic feet during the comparable week. The reading however outperformed analysts’ expectations for a 94 billion cubic feet gain, allowing the energy source to extend positions.

U.S. natural gas stockpiles now totaled 3.577 trillion cubic feet and were 3.7% below the amount of gas held in underground storage hubs during the same period last year. The surplus over the five-year average reserves widened by 0.2% to 1.6%. Stocks in the East Region received net injections of 51 billion cubic feet and were 101 billion below the five-year average. Inventories in the Producing Region rose by 30 billion cubic feet and were 102 billion above the five-year average.

The Energy Information Administration said last week it will cease further operations and will not release its weekly U.S. natural gas and crude oil inventories reports until the partially shut federal government is reopened.

According to a Bloomberg survey of analysts and traders conducted last week, natural gas is expected to continue rising through the week. Seven participants wagered that the fuel will extend its advance, while two expected prices to fall and one remained neutral.