Natural Gas Futures Rise on Outlook for Frigid January Weather

Natural gas futures advanced in New York, capping the second straight weekly gain, on speculation that a cold start to January will drive up heating-fuel demand.

Gas rose 1.7 percent as forecasters including Commodity Weather Group LLC predicted below-normal temperatures for most of the lower 48 states over the next six to 10 days. An Energy Department report today showed U.S. stockpiles fell 72 billion cubic feet last week to 3.652 trillion, in line with estimates by analysts and Bloomberg users.

“At this point this is the coldest weather we’ve come across in the Northeast and the prices are following that,” said John Woods, president of JJ Woods Associates and a trader on the floor of the New York Mercantile Exchange. The stockpile number “came in exactly where we thought it would come in. It was a non-event.”

Natural gas for February delivery rose 5.7 cents to settle at $3.469 per million British thermal units on the Nymex. Prices gained 0.5 percent this week and have increased 16 percent this year, heading for the first annual gain since 2007. Futures trading volume was down 58 percent from the 100-day average as of 2:33 p.m.

Options volume jumped in late trading. The most active contracts were February $4.20 calls, which fell 0.2 cent to 0.7 cent on volume of 5,636 lots as of 3 p.m. February $2.90 puts slid 0.6 cent to 0.6 cent on volume of 5,233. Puts accounted for 52 percent of trading.

“For natural gas the winter months are like the Super Bowl, where this is the main event for the year,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “When the forecasts change from above normal to below normal, they will have an impact on pricing.”

Cold Weather

Temperatures will be below average across most of the lower 48 states over the next six to 10 days, according to forecasters including Commodity Weather Group LLC in Bethesda, Maryland.

The low in Detroit on Jan. 3 may be 11 degrees Fahrenheit (minus 12 Celsius), 10 below normal, and the next day Boston’s low may be 8 below the usual reading at 15 degrees, according to AccuWeather Inc. in State College, Pennsylvania.

About 50 percent of U.S. households use gas for heating, department data show.

“If we do get some cold weather, you are seeing some calls for sizable withdrawals,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

The five-year average U.S. inventory drop in the week ended Dec. 21 was 140 billion cubic feet, department data show. A gas surplus to the average expanded to 12.8 percent from 10.2 percent the previous week.

Price Outlook

Gas prices will be higher in 2013 as more normal demand in the heating season from November through March erodes stockpiles that ballooned last winter, the department said its Dec. 11 Short-Term Energy Outlook. The surplus widened to 61 percent by the end of March after the fourth-warmest U.S. winter on record reduced gas consumption amid record production.

Gas at the Henry Hub in Erath, Louisiana, the delivery point for New York futures, will average $3.68 per million Btu in 2013, up 32 percent from this year, according to the monthly report.

The Energy Department expects gas production to increase 0.5 percent in 2013 to 69.59 billion cubic feet a day from an all-time daily high of 69.22 billion this year.

Stockpiles have reached record highs for four straight years as hydraulic fracturing, or fracking, made it economical to extract gas from shale deposits such as the Marcellus in the Northeast, department data show.

The gas-rig count rose by two this week to 431, the most since the week ended Oct. 5, data from Baker Hughes Inc. show. The total has dropped 47 percent this year.

The U.S. produced 83 percent of its energy in the first nine months of the year, on track to be the highest level since 1991, U.S. Department of Energy data show.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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