Natural gas futures hit three-week high on cold weather outlook

Natural gas rose for a third day to a three-week high on Monday as weather forecasting models predicted current above-normal temperatures in the U.S. to give way to colder-than-usual weather, stoking demand for the power-station fuel.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.694 per million British thermal units at 13:49 GMT, up 0.92% on the day. Prices surged to a three-week high of $3.702 per mBtu, while days low was touched at $3.674. The energy source added 1% on Friday and settled the week 2.6% higher after it gained 1% in the preceding five-day period.

Futures advanced for a third day on expectations for colder-than-usual weather through the second half of the week in key U.S. consuming areas. Commodity Weather Group LLC said that current above-normal readings will be followed by below-average temperatures in the eastern parts of the country between November 20 and November 24. According to natgasweather.com, a Canadian cold front, coupled with showers and storms, will sweep through the Midwest today and into the Northeast overnight, causing temperatures to drop from 10-15 degrees Fahrenheit above the average to 10-15 degrees below usual.

AccuWeather Inc. reported that readings in New York will peak at 68 degrees Fahrenheit on November 18, 15 above normal, followed by a drop to 44 degrees, or 8 below usual, two days later.

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 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 this weeks U.S. natural gas storage inventories. According to early withdrawal estimates, the Energy Information Administration is expected to report that stockpiles fell by between 15 and 41 billion cubic feet in the week ended November 15, compared to the five-year average decline of 2 billion and last years 36 billion cubic feet decrease during the comparable period.

The energy source drew support last week after the EIA reported on Thursday that U.S. natural gas inventories rose less than projected in the seven days through November 8, although the gain was still above the average. Stockpiles added 20 billion cubic feet, above the five-year average build of 19 billion and last year’s 12 billion increase during the comparable week. Inventories were expected to surge by 22 billion cubic feet according to the median estimate of 18 analysts surveyed by Bloomberg.

Total gas held in underground U.S. storage hubs equaled 3.834 trillion cubic feet, 2% below last year’s 3.914 trillion during the comparable period. The surplus over the five-year average total amount of gas remained unchanged at 1.5%.