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Natural Gas Fluctuates Near Five-Month Low Amid Texas Heat

By: Christine Buurma & Naureen S. Malik |

Natural gas fluctuated in New York near a five-month low amid forecasts for hotter-than-usual weather in Texas that would spur demand from power plants.

Gas moved between gains and losses as Commodity Weather Group LLC, predicted above-normal temperatures across most of Texas through Aug. 20. The high in Dallas on Aug. 19 may be 102 degrees Fahrenheit (39 Celsius), 5 more than average, according to AccuWeather Inc. in State College, Pennsylvania.

“The forecasts through mid-August aren’t looking supportive,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “If we don’t see more cooling-degree days and power generation, it’s going to weigh on the market.”

Natural gas for September delivery fell 0.1 cent to $3.318 per million British thermal units at 10:14 a.m. on the New York Mercantile Exchange after settling at $3.319 per million Btu yesterday, the lowest closing price since Feb. 22. Trading volume was 32 percent below the 100-day average. Prices have declined 1 percent this year.

The discount of September to October futures narrowed 0.1 cent to 2.6 cents.
September $3.20 puts were the most active options in electronic trading. They were unchanged at 5.4 cents per million Btu on volume of 152 at 10:10 a.m. Puts accounted for 72 percent of trading volume. Implied volatility for at-the-money options expiring in September was 32.71 percent at 10 a.m., compared with 31.88 percent yesterday.

Texas Weather

“Texas is the only show in town for exceptional heat,” Matt Rogers, president of Bethesda, Maryland-based CWG, said today in a note to clients. Temperatures in the Northeast and Midwest may be 3 to 5 degrees below the nor from Aug. 11 to Aug. 20, he said.

Electricity generators, the largest consumers of U.S. gas, will account for 32 percent of demand this year, data show from the Energy Information Administration, the Energy Department’s statistical arm.

“The cooler nights of late August get into the minds of traders about what lies ahead,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “It might not be a bad idea to acquire some length in the back of the market, ahead of the rush of winter.”

Gas inventories probably expanded by 74 billion cubic feet last week, based on the median of five analyst estimates compiled by Bloomberg. Estimates ranged from increases of 64 billion to 79 billion. Supplies rose by 25 billion cubic feet the same time last year and the five-year average gain for the period is 42 billion, EIA data show.

Stockpiles totaled 2.845 trillion cubic feet in the week ended July 26, 1.2 percent below the five-year average for the seven days.