By Reg Curren and Asjylyn Loder

Sept. 24 (Bloomberg) -- Natural gas futures rose in New York for the third straight day amid speculation that a strengthening economy and colder U.S. weather will increase demand and begin to draw down near record-high inventories.

A government report today showed an unexpected drop in U.S. jobless claims, a sign the economy is pulling out of the recession. Demand for gas starts to rise in November as temperatures fall.

“The question is how hard are we going to hit storage?” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston. The market has priced in record-high storage and is now focused on the prospect that a cold U.S. winter will lead to inventory draw-downs, she said.

Natural gas for October delivery rose 9.5 cents, or 2.5 percent, to close at $3.955 per million Btu on the New York Mercantile Exchange. The fuel was trading at $3.774 before the supply report was released at 10:30 a.m. in Washington.

Inventories rose 67 billion cubic feet in the week ended Sept. 18 to 3.525 trillion cubic feet, the Energy Department said. The median of 22 analyst estimates showed an increase of 68 billion.

A similar gain in next week’s report would put stockpiles at an all-time high. The record of 3.545 trillion cubic feet was reached on Nov. 2, 2007.

Cold Weather Approaches

Prices typically advance with the approach of the cold- weather months in the U.S. Futures rose through September to the end of October in all but one of the previous five years, declining in 2008 as the recession deepened.

Lower temperatures increase demand for gas as a heating fuel. About 50 percent of U.S. households rely on it for that purpose. November marks the start of the heating season for much of the country.

The market is concerned that producers have cut rig counts and production capacity to a point where they will not be able to ramp up quickly to meet heating demand, leading to large withdrawals from storage, said Mike Fitzpatrick, vice president of energy with MF Global in New York City.

“You can’t just flip a switch and turn production back on,” Fitzpatrick said. “That’s what is holding gas up and will continue to hold it up.”

Those concerns are reflected in the price curve of natural gas futures, where gas for January and December delivery is trading at a premium to today’s prices, Viswanath said.

Natural gas for December delivery rose 14.6 cents, or 2.7 percent, to close at $5.592 on the Nymex, while natural gas for January delivery rose 14.4 cents, or 2.5 percent, to $5.85.

Rigs More Productive

Cold weather may not have the impact on gas inventories that bullish traders hope, Viswanath said. First, she said, while rig counts have come down, the remaining rigs are more productive. Second, 15 new coal plants are slated to come online by the end of 2010, reducing fuel demand from power generators, she said.

Natural gas rigs increased by six, or 0.9 percent, to 705 last week, according to data published by Banker Hughes Inc. The gas rig count is down 56 percent from a peak of 1,606 on Sept. 12, 2008.

The number of Americans filing first-time claims for jobless benefits dropped last week to the lowest in two months.

Applications fell by 21,000 to 530,000 in the week ended Sept. 19, from a revised 551,000 the week before, Labor Department data showed today in Washington.