Natural gas futures near 3-week high on cold weather forecasts

Natural gas rose for a second day and traded near three-week high levels on forecasts for below-average temperatures in most of the eastern U.S. during the next five to seven days, boosting the power-station fuels demand prospects as Americans turn up the heating.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.689 per million British thermal units at 12:47 GMT, up 0.39% on the day. Prices shifted in a days range between $3.662 and $3.696 per mBtu, near Mondays three-week high of $3.704. The power-plant fuel rose by nearly 3.2% on Wednesday, the most in more than a month, and extended its weekly advance to over 1.1% on Thursday.

The energy source advanced as weather forecasting models continued to point to below-average temperatures across most of the U.S. in the next five to seven days. According to NatGasWeather.com, a strong cold front will drop through the Intermountain West and into the Plains today, coupled with rain and snow falling over as far south as Kansas. A second wave of cold air is expected to sweep across the Midwest and Northeast on Friday and Saturday, bringing readings to 20-25 degrees Fahrenheit below usual. Temperatures are expected to briefly moderate early next week, NatGasWeather said, before falling again after a new shot of cold air drops into the Midwest in the middle of the week and brings snow.

Reading in the northern parts of the country are expected to remain below-average between November 28 and December 6, the agency said, but how cold and how far down into the central U.S. will the cold front move is yet uncertain.

MDA Weather Services in Gaithersburg, Maryland, also predicted that the eastern half of the U.S. will experience colder-than-normal weather through December 4, indicating increased consumption of the energy source.

According to AccuWeather.com, the low in New York on November 29 will be 26 degrees Fahrenheit, 12 below usual, while temperatures in Chicago may bottom at 18 degrees, 10 beneath the average. In Boston, readings are expected to fall to 25 degrees Fahrenheit on December 3, 8 below usual, and then dip to 21 degrees three days later, 11 below average.

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. Above-average readings in the winter season have the opposite effect. 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 week’s inventories report by the Energy Information Administration, due at 15:30 GMT today. According to the median estimate of 21 analysts surveyed by Bloomberg, the Energy Information Administration is expected to report that stockpiles fell by 38 billion cubic feet in the week ended November 15, compared to the five-year average decline of 2 billion and last year’s 36 billion cubic feet decrease during the comparable period.