Natural gas rebounds on demand outlook

Natural gas recovered on Wednesday from yesterdays losses on outlook for below-average temperatures in key U.S. consuming areas, causing households to crank up the heating. The fuel fell on Tuesday on speculations that the colder weather wont be able to offset rising inventories.

On the New York Mercantile Exchange, natural gas futures for settlement in November rose by 1.39% to $3.843 per million British thermal units at 12:29 GMT. Prices held in range between days high and low of $3.850 and $3.802 per mBtu respectively. The fuel fell by 0.8% on Tuesday but losses were offset on Wednesday, extending its weekly advance to 1.5%.

Gas fell on Tuesday as investors locked in profits after it rose to a 4-month high and on speculations that the current cold weather will not be able to offset the ample supply outlook. The EIA said on October 8 that marketed gas output may rise by 1.2% this year to a record 70 billion cubic feet a day. The agency also reported that the U.S. self-sustainability has allowed nation to meet 87% of its own energy needs in the first half of the year and is set to be the highest annual rate since 1986.

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%.

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 government funding is resumed.

The power-station fuel however continued to advance on Wednesday as forecasts for colder than average weather in parts of the U.S. will stoke demand. Commodity Weather Group LLC in Bethesda, Maryland, predicted yesterday below-usual temperatures in the Midwest between October 20 and October 24. According to AccuWeather Inc., the low in Chicago on October 20 may fall to 41 degrees Fahrenheit, 3 below-usual, while temperatures in Milwaukee on October 26 may bottom at 29 degrees Fahrenheit, 11 below normal.

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 49% of U.S. households use gas for heating.