Natural gas gains on above-usual temperatures

Natural gas rebounded from Fridays biggest drop in two weeks and traded higher throughout the day as weather forecasters predicted above-average temperatures across key consuming areas, thus boosting demand prospects for the power plant fuel.

On the New York Mercantile Exchange, natural gas for delivery in October traded at $3.528 per million British thermal units at 13:55 GMT, up 0.18% on the day. Futures shifted between a 1-month high of $3.583, the strongest level since July 26, while days low stood at $3.518 per mBtu. The fuel fell more than 2% on Friday, the biggest daily decline in two weeks, but still settled the week 3.3% higher after advancing 4.5% the preceding five-day period.

Natural gas rebounded from Fridays drop and hit a 1-month high amid weather forecasts that pointed at above-normal temperatures. Commodity Weather Group LLC said that most of the lower-48 states will experience higher-than-usual temperatures through September 9. According to AccuWeather Inc., the heat in Houston may peak at 96 degrees Fahrenheit on August 31, 5 more than normal.

Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said for Bloomberg: “This heat wave is giving the market a boost. Power demand has been a lot higher than anticipated and buyers are creeping into the market.”

Market players will also be focusing the upcoming weekly EIA natural gas inventories report due on Thursday. Early injection estimates for last weeks build range between 53 billion and 69 billion cubic feet, which is generally in line with the five-year average gain of 66 billion and last years increase by 64 billion cubic feet during the comparable week.

The fuel was well supported last week following EIA’s bullish inventories report. Natural gas storage increased by 57 billion cubic feet in the week ending August 16, compared to last year’s and the five-year average builds at 43 billion and 56 billion cubic feet respectively. The rise was well below market projections for a 67 billion cubic feet increase according to a Bloomberg survey of analysts.

Natural gas stockpiles totaled 3 063 billion cubic feet, which remained 1.5% above the five-year average of 3 019 billion and 7.2% below last year’s 3 301 billion cubic feet of gas held in underground storage hubs.

EIA’s report also showed that inventories in the East Region added 47 billion cubic feet and were 103 billion below the five-year average, while stockpiles in the Producing Region received a 4 billion cubic feet injection and were 88 billion below the five-year of 969 billion.

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. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.