Natural gas futures advanced to a five-day high in New York before a government report that may show a below-average inventory increase for last week.
Gas rose 1.9 percent. The Energy Department may report a supply increase of 80 billion cubic feet, based on the median of five analyst estimates compiled by Bloomberg. The five-year average gain for the week is 84 billion. Price gains accelerated after National Weather Service forecasts for the Midwest turned cooler for mid-October.
“People are anticipating a smaller number and the surplus to the five-year average could possibly fall even further,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “They are going to take advantage of any pullback in anticipation of a rally.”
Natural gas for November delivery increased 6.4 cents to $3.467 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Oct. 2. The futures have risen 16 percent this year.
January $3 puts were the most active options in electronic trading. They fell 0.2 cent to 1.7 cents per million Btu on volume of 2,595 contracts at 2:38 p.m. January $4 calls were the second-most active gas options today, jumping 3.1 cents to 21.3 cents on volume of 1,648 contracts.
The discount for November contracts versus December futures widened 0.7 cent from yesterday to 30.1 cents, the most since June 13.
Supply Surplus
U.S. gas supplies totaled 3.653 trillion cubic feet in the week ended Sept. 28, 8.3 percent above the five-year average for the period, the department said last week. This week’s report is due Oct. 11. The surplus has been narrowing since March as power plants burned a record amount of gas as they switched from costlier coal and demand rose during a hot summer.
A midday forecast from the National Weather Service showed below-normal temperatures in the Midwest over the next 11 to 15 days. A Weather Service report earlier in the day showed warmer weather, said Dan Leonard, a senior meteorologist with Weather Services International in Andover, Massachusetts.
Chicago may see temperatures 3 to 6 degrees below normal with highs in the 40s Fahrenheit (4 to 9 Celsius) and lows in the upper 20s or low 30s for the period, Leonard said. The northeast will be cooler from Oct. 20 through Oct. 24, but temperatures will still be above the usual readings, he said.
About half of U.S. households use gas for heating, according to the Energy Department.
Prices fell as much as 1.7 percent in earlier trading on the outlook for milder weather signaled reduced demand for the heating fuel.
Even with bearish weather forecasts, the market has been showing some “price stubbornness,” possibly as hedgers buy gas before winter demand arrives, Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a note to clients today.
This week’s inventory report will reflect heating demand from last week and how sensitive power plants are to rising gas prices, he said.
Above-average gas use at electricity generators has helped buoy demand during a seasonal lull. Power plants will consume an average of 21.22 billion cubic feet a day of gas from October through December, 13 percent higher than a year earlier, the Energy Department said in its monthly Short-Term Energy Outlook on Sept. 11.
The department predicted that coal-to-gas switching at power plants may slow and start to reverse as gas prices increase in the fourth quarter and in 2013.
Futures Volume
Gas futures may see support at $3.255 per million Btu and see temporary resistance at $3.546, Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today.
Volume was 433,957 contracts as of 2:42 p.m. in electronic trading, exceeding the 333,913 contracts traded during yesterday’s Columbus Day federal holiday. The three-month average is 381,000. Open interest was 1.18 million contracts. The three-month average is 1.11 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.
