natural gas options

Natural gas futures

September 3rd, 2013

Natural gas futures climbed to a five-week high in New York on concern that storms would disrupt supplies amid hot weather that may stoke demand for the power-plant fuel.

Gas gained as much as 2.8 percent after the National Hurricane Center said low pressure systems were producing showers and thunderstorms over the Lesser Antilles and Mexico’s Yucatan Peninsula. MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures in the central U.S. through Sept. 17.

“These storms are definitely providing a little extra support for the market because there’s concern that they could move into the Gulf,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “It’s pretty warm in the Midwest and the hot temperatures are still boosting cooling demand.”

Natural gas for October delivery rose 8.3 cents, or 2.3 percent, to $3.664 per million British thermal units at 10:05 a.m. on the New York Mercantile Exchange. Trading volume was 27 percent above the average for the time of day. Prices are up 9.3 percent this year. The futures advanced to $3.683, the highest since July 25.

The discount of October to November futures narrowed 0.7 cent to 9.6 cents. October gas traded 32.7 cents below the January contract, compared with 34.5 cents on Aug. 30.

Options Trading

October $2.90 puts were the most active options in electronic trading. They were unchanged at 0.2 cent per million Btu on volume of 688 at 9:57 a.m. Puts accounted for 69 percent of trading volume. Implied volatility for October at-the-money options was 31.9 percent at 10 a.m., compared with 30.42 percent on Aug. 30.

There was no floor trading yesterday because of the U.S. Labor Day holiday, and yesterday’s electronic transactions will be booked today for settlement purposes.

The area of low pressure over the Yucatan has a 30 percent chance of becoming a tropical cyclone as it moves across the Bay of Campeche over the next five days, the National Hurricane Center in Miami said in an 8 a.m. outlook. The system in the eastern Caribbean near Dominica has a 50 percent chance of strengthening to a cyclone over the same period.

The Gulf will account for 5.7 percent of U.S. gas production this year, EIA data show. Sept. 10 is the statistical peak of the Atlantic hurricane season, according to the hurricane center.

Weather Outlook

The high in Chicago on Sept. 11 may be 82 degrees Fahrenheit (28 Celsius), 4 higher than average, according to AccuWeather Inc. in State College, Pennsylvania. Houston temperatures may reach 95 degrees Fahrenheit, 5 above average, AccuWeather data show.

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

Gas inventories totaled 3.13 trillion cubic feet in the week ended Aug. 23, 1.5 percent above the five-year average and 7 percent below last year’s supplies, EIA data show.

PVR Partners LP (PVR) is partnering with Hess Corp. (HES) to develop a 45-mile natural gas pipeline and associated gathering lines to transport supplies from the Utica shale formation in eastern Ohio, PVR said in a statement today.

The line will have a minimum capacity of 450 million cubic feet a day and may begin operations in late 2013, PVR said.

The U.S. lowered its 2013 natural gas production estimate to 69.89 billion cubic feet a day from last month’s forecast of 69.96 billion, the EIA said Aug. 6 in its Short-Term Energy Outlook. Output may rise 1 percent from a year ago to a record as onshore supplies climb.

Inventories may reach 3.8 trillion cubic feet at the end of October, about 130 billion below last year’s level for the time of year, the EIA said.

The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.

- Christine Buurma in New York at Bloomberg.