Natural gas rallies amid warm weather forecasts across the Midwest

Natural gas rose on Wednesday as updated weather forecasts pointed at a blast of heat across the Midwest, thus boosting demand for the power plant fuel.

On the New York Mercantile Exchange, natural gas for delivery in September rose to $3.470 per million British thermal units at 14:35 GMT, up 0.74% on the day. Prices rose to a days high of $3.495 per mBtu, while days low was touched at $3.411. The fuel slipped 1.4% on Tuesday, but extended its weekly advance to little 3.0% following Wednesdays gains.

Natural gas surged on Wednesday amid expectations for above-average temperatures in the Midwest. MDA Weather Services updated its prior forecasts and said that the U.S. Midwest faced “a much hotter outlook” this weekend and early next week. The agency also forecast above-usual temperatures from the Northeast to the West Coast through September 2.

When higher-than-normal temperatures are 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. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.

Earlier in the week, Morgan Stanley predicted that stockpiles will be in line with the average levels for the last three years. Adam Longson and Tai Liu, Morgan Stanley analysts, wrote in a report that inventories will total 3.86 trillion cubic feet by the end of October, moving prices in the third quarter to $3.42 per mBtu and $3.69 in the last three-months of the year.

Market players are awaiting this week’s natural gas inventories report by the EIA. According to a Bloomberg survey, early injection estimates for last weeks build stand at 67 billion cubic feet, well above last year’s and the five-year average builds at 43 billion and 56 billion cubic feet respectively.

Last week, the Energy Information Administration reported that U.S. natural gas stockpiles rose less than expected in the week ending August 9. The government agency said that inventories rose by 65 billion cubic feet to 3.006 trillion cubic feet, which was less than the previous year’s total 3.258 trillion cubic feet of gas held in underground storage hubs. At the same time, the surplus over the five-year average 2 963 billion cubic feet widened to 1.5% from the preceding week’s 0.7%, which marked the first surplus since March. The build was well over the five-year average and preceding year’s gain, but outperformed expectations.