Gas prices rise as heat drives power-plant demand

Eleven of 18 traders and analysts, or 61%, predicted prices would rise this week, according to a July 28 survey by Bloomberg News. Four said prices will drop, and three predicted little change. It was the most bullish result for the poll since February. U.S. power-plant demand for natural gas soared in the past two weeks as record temperatures drove air-conditioning use. The heat forced utilities to make their first-ever summertime withdrawal from gas-storage caverns and left tens of thousands without electricity from the Midwest to New York City. The hot weather is forecast to persist in the first half of August. „There will be enough cooling demand in August,” said Tim Evans, an energy analyst at Citigroup Global Markets in New York. Power plant needs will limit the availability of gas to put in storage and keep prices high, he said. „Increased risk of tropical storms will only add to the pressure.” Natural gas for September delivery surged 15% last week, the second-biggest weekly gain this year. The contract closed at $7.184 per million British thermal units on the New York Mercantile Exchange. A week ago, 43% of respondents predicted rising prices. The Bloomberg survey has been correct 50% of the time since it began in June 2004.
Gas storage levels fell to 22% above the five-year average from 26%. The surplus developed because of milder-than-normal weather last winter that left more gas in inventories at the end of the season. Analysts and traders looking ahead to this week's supply report said a below-normal increase is likely because of the hot weather last week, which will further erode the excess supply. „This surplus could be vulnerable,” said James Grandefeld, a futures broker at TFS Energy LLC in Stamford, Connecticut. „You could easily take 240 billion cubic feet out of the surplus” by the end of the summer should the weather stay hot, he said. Gas stocks were 490 billion cubic feet higher than the average for the past five years in last week's report. „Eight weeks ago it looked like we were going to significantly overfill storage,” said David Pursell, president of Pickering Energy Partners Inc. in Houston. „If this hot weather hangs around for a while, you may not overfill storage. You may just barely fill storage.”
The commodity has dropped over that period just once, when it fell 4.2% in 2003. There's a „seasonal tendency for natural-gas futures to rally from the end of July,” said Veronique Lashinski, an analyst with Fimat USA Inc. in Chicago.
„To think that we're going to get through the next eight weeks without a hurricane is wishful thinking,” said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. Last week's rally may mean prices would reach $8 per million, but by the end of next month, according to technical analysis from Rodney Dow, president and founder of Garrison, New York-based broker and consultant Dow Corp. (Bloomberg)