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Nymex Gas Gains a Fifth Day on Expectations for Colder Weather

By Geoffrey Smith

Oct. 5 (Bloomberg) -- Natural gas rose for a fifth day in New York on expectations that colder weather will increase demand for the furnace fuel as winter approaches.

Gas typically rallies before the official start of winter, as traders anticipate colder weather and higher consumption of the heating fuel from households and businesses. Natural-gas futures have rallied in October 12 of 16 times since trading began in 1990.

``We're seeing the beginning of the winter natural-gas rally,'' said Jason Schenker, an economist with Wachovia Corp. in Charlotte, North Carolina. ``It's getting colder out and that's a fundamental driver of natural gas prices.''

Gas for November delivery rose 31.5 cents, or 5.3 percent, to $6.31 per million British thermal units at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Settlement there would mark the highest in five weeks. The price has climbed 17 percent during the past five sessions. Gas is still down 55 percent versus a year ago.

Benchmark gas reached $4.05 last week, the lowest price in almost four years. The price came while investors were still trading gas for delivery in October. Prices have gained since trading for November took over, showing the perception that November will generate greater demand because of the onset of colder weather.

Weather Pressure

``As we move through October, we're going to see natural weather pressures to the upside,'' Schenker said. ``Ever since the beginning of the current contract, we've seen the prices moving higher.''

Lows in Chicago will reach 45 Fahrenheit (7 Celsius) today and tomorrow, 2 degrees below normal, according to National Weather Service forecasters. Demand for heating in the northern Midwest will top normal by 3 percent tomorrow through Oct. 12, according to forecaster Weather Derivatives.

New York City's low temperatures will touch 48 today and 49 tomorrow. The normal low is 54 this time of year.

Weather outlooks showed below-average temperatures across the northern Midwest, Great Lakes, and New England next week, according to an outlook covering Oct. 10 through 14 from the U.S. Climate Prediction Center.

Inventory Report

U.S. gas inventories rose 73 billion cubic feet last week, taking stockpiles to 3.327 trillion, matching the all-time peak, the Energy Department reported today. Supplies reached 3.327 trillion in November 2004, which before today's report, stood as the high mark since the Energy Department began tracking weekly supply changes in 1994.

The natural gas market is ``looking at historic inventories,'' said George Speicher, a trader at Dow Hydrocarbons Resources Inc. in Houston.

The weekly gain trailed the average analyst estimate for an increase of 77 billion, based on 23 analysts surveyed by Bloomberg. Estimates ranged from a gain of 66 billion to as high as 82 billion.

Trading in options and forward contracts settled on an increase of 71 billion during a one-hour session at the Nymex yesterday. The contracts are offered by broker ICAP Energy LLC.

Gas stockpiles were 12 percent higher than the average for the past five years, Energy Department data showed. Supplies were 14 percent higher than a year ago, up from 13 percent the previous week.

Utilities and manufacturers add to storage depots from April through November to help supplement gas available on pipelines during winter.

Natural gas reached as high as $6.33 in today's session, the highest price since August and an area identified by technical analyst Veronique Lashinski as one that would likely stall the advance, according to a report from the analyst yesterday. Lashinski reads gas-price charts for Fimat USA Inc. in Chicago.

She pointed out that $6.291 was the 20-day moving average. Analysts use moving averages to put day-to-day price moves in context as well as to track trends and predict changes.

Lashinski expects prices to keep moving higher and said gas will likely challenge $7 on its way to $7.145, based on analysis of Fibonacci graphs. Fibonacci is a mathematical system based on the idea that prices move in specific increments according to previous highs and lows.

To contact the reporter on this story: Geoffrey Smith in New York at [e-mail] .