WASHINGTON (AP) – Natural gas futures surged 14 percent to a near six-month high on Monday, rallying on strong demand from power producers amid scorching temperatures across the Midwest and Northeast.

Oil prices also rose as fighting between Israel and Hezbollah raged on, keeping traders tense about a possible Mideast supply disruption.

The U.S. heat wave drove up demand for natural-gas-fired electricity as consumers cranked up their air conditioners and utilities asked homeowners to conserve electricity.

September natural gas futures jumped $1.027 on the New York Mercantile Exchange, settling at $8.211 per 1,000 cubic feet – the highest close for front-month natural gas futures since Feb. 3.

The upper Midwest and Plains were steamy, with heat warnings issued from Michigan to Oklahoma. Forecasts for above-normal highs were posted along the East Coast, where triple-digit readings were in the offing by midweek from the Carolinas through southern New England.

Jim Owen, a spokesman for the Edison Electric Institute, a trade group, said there was a “fairly significant strain” on the nation’s power grid. Particularly vulnerable are the distribution lines, which heat up and sag as more juice flows through them, raising the risk of outages.

Although there were some unplanned nuclear power-plant outages in Michigan and Minnesota due to the heat, Owen said power generators and distributors appear to have enough capacity to meet demand.

Still, grid operators told utilities to be prepared to implement emergency procedures, while utilities asked their customers to conserve electricity by not setting their thermostats too low, and by postponing the use of major appliances until the off-peak evening hours.

The EEI said last week that the U.S. set a record for electricity demand for the week ending July 22. The Energy Department last week surprised the market by reporting that U.S. inventories of natural gas shrank by 7 billion cubic feet. Supplies typically build during summer.

Still, the country’s natural gas inventory is well above historical levels at 2.76 trillion cubic feet. The five-year average for this time of year is 2.27 trillion cubic feet.

Analyst Dan Lippe of Houston-based Petral Worldwide believes that, barring any major hurricane damage to platforms and pipelines, natural gas prices could fall sharply in September. “You will see (U.S.) storage facilities full well before the last week of October,” Lippe said.

Light sweet crude for September delivery rose $1.16 to settle at $74.40 on the New York Mercantile Exchange. September Brent crude futures at London’s ICE Futures exchange rose $1.76 to settle at $75.15 a barrel.

Oil prices have been choppy in recent weeks, but BNP Paribas Commodity Futures broker Ric Navy said the market could be setting up for a big move up.

“The longer you go sideways, the bigger the breakout when it occurs,” Navy said. “And at this point, the long-term trend is still higher.”

Navy said traders could easily become more anxious in the weeks ahead, with the Gulf of Mexico hurricane season expected to pick up and the nuclear standoff between the West and Iran expected to come to a head in late August.

The U.N. Security Council passed a resolution Monday giving Iran until Aug. 31 to suspend uranium enrichment or face the threat of economic and diplomatic sanctions. Iran immediately rejected the council’s demands, which were watered down from earlier drafts because of Russian and Chinese demands.

Oil traders have been focused for nearly three weeks on the violence between Israel and Hezbollah guerrillas in Lebanon, fearful of possible supply interruptions in the region. Iran, OPEC’s No. 2 supplier, is a backer of Hezbollah.

In other Nymex trading, gasoline futures were down less than a penny to settle at $2.2289 per gallon and heating oil futures were up 2.67 cents to settle at $1.9679 per gallon.

AP-ES-07-31-06 1739EDT

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