BLoomberg News: 10-18-2006 / 15:29 (New York)

Natural Gas Gains on Expectations Early Cold Will Boost Demand.

Natural Gas and Oil

By Geoffrey Smith Oct. 18 (Bloomberg) -- Natural gas rose for the second dayin three as traders bought the furnace fuel on the expectationthat demand will rise as winter approaches. The benchmark contract has risen in the month of October 12out of 16 times since futures trading started in 1990. Colderweather boosts fuel consumption from household and commercialfurnaces. Gas has climbed 21 percent so far this month,rebounding from a 50 percent annual decline in 2006. ``It's trying to turn the trend around,'' said Rodney Dow,president and founder of Garrison, New York-based broker andconsultant Dow Corp. ``The market has been greatly oversold.'' Gas for November delivery rose 36.5 cents, or 5.7 percent,to $6.807 per million British thermal units on the New YorkMercantile Exchange. Gas has climbed 20 percent this week. Forecasters predicted below-average temperatures across muchof the northern U.S. next week, according to the latest outlookfrom the U.S. Climate Prediction Center. The lowest readings willbe clustered in the Midwest and Great Lakes regions, the biggestresidential gas markets. Below-normal temperatures last week in the northern Plainsand Midwest boosted demand and limited the amount of fuel flowinginto storage caverns, analysts said. The weather averaged 54 percent cooler than average lastweek in a cluster of states including Minnesota, Iowa, Missouri,Kansas, Nebraska, and the Dakotas, according to data from theNational Oceanic and Atmospheric Administration. Supply Report U.S. gas stockpiles may have climbed by 48 billion cubicfeet last week, according to the median estimate from 21 analystsin a Bloomberg survey. That would compare to an average increaseof 66 billion the past five years and a rise of 72 billion a yearago, government data showed. The Energy Department's weekly report on inventories isscheduled for release tomorrow at 10:30 a.m. from Washington. Theanalysts' estimates ranged from gains of 35 billion to 70billion. While the November contract rose, contracts for deliverythis winter fell, narrowing a spread that many analysts said hasbeen too high for too long. ``The relationship between front and back months has justbeen ridiculously large,'' Dow said. ``It's coming back tonormalcy.'' Traders bought the November contract, and sold contracts fordelivery from December through March. November's discount to December gas fell to $1.05, down from$1.84 on Sept. 1. The spread between November and January fell to$1.46, a 42 decline since Sept. 1. The December contract rose 15cents to $7.852 and January rose 1.5 cents to $8.267. Colder Weather Predicted ``What you're seeing is a reaction to the colder weather andthe strength in the cash prices. That's affecting November,''said Guy Gleichmann, president of United Strategic InvestorsGroup in Hollywood, Florida. ``In the back months, you're seeingsome weakness because they need more confirmation'' that colder-than-average weather will hit during the heart of winter, hesaid. The winter will bring colder-than-average weather to theeastern half of the U.S., according to an outlook released todayfrom AccuWeather Inc. The State College, Pennsylvania-basedprivate forecaster said El Nino won't bring the mild winter thatgovernment meteorologists are predicting. ``The Northeast could experience severe, prolonged cold. Tendays or more of temperatures averaging 5 to 10 degrees belownormal,'' AccuWeather forecaster Joe Bastardi said in today'sreport. ``Most likely during the month of January.'' The El Nino will remain weak, Bastardi said, and won't causethe mild winters associated with stronger versions of thephenomenon. Government meteorologists at the Climate PredictionCenter said last week that El Nino weather patters will result ina U.S. winter that's 2.1 percent warmer than average.--Editor: Jordan.Story illustration: To graph the front-month Nymex gas contract,see {NG1 <Cmdty> GP D <GO>}. For other energy-related news, click{ETOP <GO>}.

To contact the reporter on this story:
Geoffrey Smith in New York - gsmith15@bloomberg.net

FUTURES AND OPTIONS TRADING INVOLVE RISK OF LOSS AND MAY NOT BE SUITABLE FOR EVERYONE.

BLoomberg News: 10-18-2006 / 15:29 (New York)

United Strategic Investors Group

Guy Gleichmann, President

1926 Hollywood Blvd Suite 311
Hollywood, Florida 33020

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