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Natural gas rallies as heat expected to return in late August

BY DAN STUMPF

NEW YORK -- Natural gas futures pushed higher Monday, notching the biggest one-day gain in nearly a month, as forecasts for hotter weather in late August boost expectations for demand.

Natural gas for September delivery settled 8 cents, or 2.5%, higher at $3.310/MMbtu on the New York Mercantile Exchange. The move was the biggest gain in percentage terms since July 18.

Market observers said the size of the move was likely caused by traders exiting short bets that had been placed throughout July. Gas futures have fallen more than 40 cents since hitting a recent high of $3.812 last month, due to lower-than-usual temperatures in recent weeks.

But recent weather forecasts suggest higher temperatures may return in late August, which could offer a final bout of late-season demand for the fuel used to generate electricity and power air conditioners.

"I think we may have been a bit oversold," said Richard Soultanian, co-President of NUS Consulting Group, noting that traders are "looking at the fundamentals and saying it won' t be straight down all the way and it won' t be mild every day the rest of the summer."

Private weather forecaster MDA on Monday morning called for above-normal temperatures in the Northeast and portions of the Midwest in both its six-to-10-day outlook and its 11-to-15-day view. It said it upgraded its forecast for heat across the northern U.S. during that time.

Natural gas futures have declined steadily since mid-July, due to a spell of below-normal temperatures across major U.S. population areas. The cooler conditions curbed demand for the commodity, which is closely correlated with temperatures because of its use as a power generation fuel.

That in turn has led to a series of sizeable injections to natural gas inventories in recent weeks. Last Thursday, gas stockpiles surged by 96 billion cubic feet, well above the 78-bcf forecast and the five-year average rise of 42 bcf. The rise included a 14-bcf reclassification to the prior week' s data.

In the absence of severe storms in the Gulf and with only a few weeks left to summer, analysts have begun to question how much higher natural gas can go before the typical autumn demand lull. The National Hurricane Center said a storm formation in the southern Caribbean had a 10% chance of becoming a tropical cyclone.

"While the last week of August will not be as mild as the previous two weeks, it will not inspire much peaking demand. The fundamental picture remains bearish," said Aaron Calder, analyst at Gelber & Associates, in a research note.

Dow Jones News Services

08/12/2013

 

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