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(Bloomberg) — Natural gas futures advanced for the first time in three days in New York as chilly weather may spur demand for the heating fuel. Temperatures will be below normal in the Midwest, Northeast and mid-Atlantic states through April 30, said MDA Weather Services. Chicago’s reading on Wednesday will drop to 31 degrees Fahrenheit (minus 1 Celsius), 11 below normal, AccuWeather Inc.’s website showed. “The low temperature in Chicago will be close to freezing over the next four, five days so there is some lingering heating demand that is providing some buoyancy to the market,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “We are hovering here at $2.50, the market may have found a bit of value.”
Natural gas for May delivery rose 3.9 cents, or 1.5 percent, to settle at $2.575 per million British thermal units on the New York Mercantile Exchange. Gas futures have declined 11 percent this year. May $2.50 puts were the most active options in electronic trading. They fell 1.4 cents to 2.7 cents on volume of 960 contracts at 2:43 p.m. Computer models show that cool weather will linger in the East at the start of May, with readings 1 to 3 degrees lower than normal during the first five days of the month, said MDA in Gaithersburg, Maryland. The Midwest and Northeast account for 63 percent of U.S. heating demand.

Supply Report

A government report on April 23 may show that gas stockpiles expanded by 85 billion cubic feet last week, based on the median of four analyst estimates compiled by Bloomberg. Forecasts ranged from gains of 50 billion to 91 billion. The five-year average for the period is a storage injection of 46 billion cubic feet. Gas production from shale formations may slip 23 million cubic feet to 45.97 billion a day in May from April as output slows at oil-rich deposits such as the Eagle Ford in Texas, the U.S. Energy Information Administration said in an April 13 report. McGillian said that while a decline in associated gas would be bullish, he expects record production this year. “The next four to five weeks of limited demand with the production we are seeing is going to bring some pressure to the market,” McGillian said. “We are looking for a really strong pace of injections,” and that rebound in gas supplies will push prices back toward 2012 lows.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Bill Banker, Stephen Cunningham