Natural Gas Advanced, November Delivery Gain

Natural gas advanced to a 10-month high in New York on speculation that above-normal demand from electricity generators will help reduce a supply surplus. Natural gas for November delivery gained 3 cents to settle at $3.617 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Dec. 1. The futures have jumped 21 percent this year. Prices rose 6 cents this week.

Gas demand from power plants rose 16 percent in July from a year earlier and may show a 14 percent year-on-year gain this quarter, according to an Oct. 10 Energy Department report. Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly cooler-than-normal weather in the eastern half of the U.S. from Oct. 29 through Nov. 2.

Gas rose 0.8 percent after an Energy Department report yesterday showed inventories expanded by 51 billion cubic feet, less than the five-year average gain of 71 billion for the week. Supplies climbed 106 billion a year earlier. Power plants are burning record amounts of the fuel this year as seasonal prices near decade lows prompted switching from coal.

“Natural gas is still being consumed in the electric power sector without being displaced by coal,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “We’ll see how long that lasts as we go into winter if prices go higher.”

November $3.75 calls were the most active gas options in electronic trading. They were down 0.2 cent to 2.7 cents on volume of 774 contracts as of 3:11 p.m. Calls accounted for 59 percent of options volume.

Inventories totaled 3.776 trillion cubic feet in the week ended Oct. 12, 7.1 percent above the five-year average, yesterday’s report showed. The surplus to the average is down from 61 percent on March 30. Stockpiles may reach 3.903 trillion cubic feet by Oct. 31, below estimated capacity of 4.239 trillion, Energy Department data show.

The low in New York on Oct. 31 may be 35 degrees Fahrenheit (2 Celsius), 11 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 31 degrees, 13 less than the usual reading.

About 50 percent of U.S. households use gas for heating, according to the Energy Department. The coming U.S. winter will probably be cooler than a year earlier, boosting demand for heating fuels such as natural gas, a panel of forecasters said.