Natural gas futures rose to a five- month high on forecasts of colder-than-normal weather that may spark greater demand for the heating fuel.
Gas futures climbed the most since July 15 as temperatures may be as much as 15 degrees below normal in parts of the Midwest from Jan 13. through Jan. 17, according to Commodity Weather Group in Bethesda, Maryland. Earlier forecasts had shown warmer-than-normal weather in the region.
Natural gas for February delivery rose 24.5 cents, or 5.6 percent, to $4.65 per million British thermal units the New York Mercantile Exchange, the highest settlement since Aug. 4. The futures declined 21 percent last year and gained 5.4 percent in December.
The move above $4.637, the intraday high on Dec. 9, primes the gas market for a rally to an “inflection high” of $4.726, said Stephen Schork, president of the Schork Group Inc., an energy advisory firm in Villanova, Pennsylvania, in a note to clients. Some technical traders say inflection points mark the beginning of a big price move in either direction.
Below-normal temperatures are likely across most of the continental U.S. through Jan. 17, Commodity Weather Group said.
“By far, the most bitter cold is seen from Calgary through the Plains with impressive sustainability in both the 6-10-day and then 11-15-day timeframe,” Commodity Weather Group meteorologists led by Matt Rogers wrote in a note to clients.
The low temperature in Chicago on Jan. 13 may be 12 degrees Fahrenheit (minus 11 Celsius), 4 degrees below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 24 Fahrenheit, 2 degrees below normal.
Cold weather in Chicago could mean an increase in gas demand of as much as 4 billion cubic feet per day, or 6.1 percent of the Energy Department’s estimate for average daily gas consumption in the U.S. in 2011, according to Teri Viswanath, a director of commodities research at Credit Suisse Securities USA in Houston.
“The noon weather updates came through and provided further confirmation of a very cold air mass cutting through the Midwest,” Viswanath said. The National Weather Service releases midday updates to its weather models, including the Global Forecast System.
U.S. heating demand may be 5 percent above normal from Jan. 9 through Jan. 13, according to Weather Derivatives in Belton, Missouri.
About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.
Cold weather reduced the surplus of gas stockpiles compared with the five-year average in five of eight weeks since early November, department data show. The department reported last week that gas inventories dropped 136 billion cubic feet in the week ended Dec. 24 to 3.232 trillion cubic feet.
The decline was bigger than the five-year average reduction of 118 billion, shrinking the surplus to 8.2 percent from 8.5 percent the previous week.
Raymond James & Associates cut its U.S. natural-gas price forecast, citing persistent supply growth and access to capital for producers.
The bank lowered its 2011 estimate to $3.75 per thousand cubic feet from $4.25 previously, and cut its estimate for 2012 to $4.25 from $4.75.
“Unfortunately for energy companies, this supply problem may be around for a while,” Houston-based Raymond James analysts J. Marshall Adkins, John Freeman and Darren Horowitz said in a note to clients dated today. “We expect that the U.S. will remain structurally oversupplied with gas until we see a step-change upward in demand.”
Gas futures volume in electronic trading on the Nymex was 306,023 as of 2:41 p.m., compared with the three-month average of 279,000. Volume was 142,256 on Dec. 31. Open interest was 772,404 contracts, compared with the three-month average of 786,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
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