Natural gas hovers around 6-week high on heat forecasts, EIA data in focus

Natural gas futures fluctuated in a narrow range between gains and losses on Thursday and remained close to Wednesdays 6-week high as forecasts for above-normal temperatures in key consuming areas boosted the power-plant fuels demand prospects.

On the New York Mercantile Exchange, natural gas for delivery in October traded at $3.682 per million British thermal units at 8:29 GMT, down 0.04% on the day. Prices held in a tight range between days high and low of $3.689 and $3.671 per mBtu respectively. The fuel slipped 0.2% on Wednesday after rising to a 6-week high of $3.699 per mbtu, trimming its weekly advance to 2.1%.

Gas remained fairly unchanged near yesterdays high as weather forecasting models continued to predict above-normal temperatures across most of the U.S. According to MDA Weather Services, the lower 48 states will experience higher-than-average temperatures between September 9 and September 13. AccuWeather Inc. reported that the heat may peak in Chicago on September 10 at 87 degrees Fahrenheit, 9 above average, while the high in New York on September 12 may be 85 degrees, 8 above usual.

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. Mild temperatures have the opposite effect. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.

Market players will also be keeping a close watch on this week’s EIA U.S. inventories data. The agencys report is due to be released today at 14:30 GMT. Early injection estimates range between 45 billion and 53 billion cubic feet, compared to the five-year average build of 60 billion. During the comparable week last year, natural gas stockpiles rose by 33 billion cubic feet.

Last Thursday, the Energy Information Administration reported that U.S. natural gas storage surged by 67 billion cubic feet in the week ended August 23, 1 million above the five-year average build of 66 billion cubic feet, and surpassing last year’s 64 billion gain during the comparable week. According to a Bloomberg survey of 25 analysts, inventories were expected to rise by 62 billion cubic feet.

Total gas held in underground storage hubs equaled 3 130 billion cubic feet as of last week, 7% below last year’s 3 365 billion. Reserves however remained 1.5% above the five-year average stockpiles at 3 085 billion cubic feet.

Gas rose on Wednesday after the National Hurricane Center reported on Tuesday that low-pressure systems over the Lesser Antilles and Mexico’s Bay of Campeche were producing thunderstorms and rainfall. The area of low-pressure over the Bay of Campeche has a 20% chance of becoming a tropical storm within the next five days, while the system in the eastern Caribbean near Dominica has a 50% chance. According to the Energy Information Administration, the Gulf accounted for 5.7% of U.S. gas output.