Natural gas rebounds on cold weather outlook

Natural gas snapped two days of losses on Wednesday on forecasts for below-normal temperatures in key U.S. consuming areas, boosting the power-plant fuels demand prospects. Bearish supply data however limited gains.

On the New York Mercantile Exchange, natural gas for delivery in November surged 1.24% to $3.626 per million British thermal units at 14:10 GMT. Prices plunged to $3.577 earlier in the session, the lowest since October 7, while days high stood at $3.628 per mBtu. The fuel fell by 1.9% on Tuesday after crumbling on Monday and trimmed its weekly decline to less than 3.8% after Wednesdays advance.

The energy source rose as weather forecasters continued to predict below-average temperatures in parts of the U.S., boosting demand prospects. Matt Rogers, president of Commodity Weather Group LLC, said for Bloomberg that colder-than-usual weather will continue to stoke heating demand in Chicago and around the Great Lakes in November. Temperatures in much of the eastern U.S. are projected to be 5 to 8 degrees Fahrenheit below the average through the end of the week, Rogers added.

When cool 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 the energy source for heating.

Market players will also be keeping a close watch on EIAs natural gas inventories report, due for release on Thursday. The fuel extended losses on Tuesday after the Energy Information Administration released its delayed storage report which was slated for October 17. The government agency reported that U.S. inventories rose by 77 billion cubic feet in the week ended October 11, matching the median estimate of analysts surveyed by Bloomberg. The build however exceeded the five-year average increase of 75 billion cubic feet and last year’s 54 billion gain during the comparable week.

Total gas held in underground U.S. storage hubs now equaled 3.654 trillion cubic feet, 3.1% lower than last year’s 3.769 trillion cubic feet. The surplus over the five-year average total amount remained unchanged at 1.6%.