Natural gas climbed for a fourth day in New York, closing at the highest price in almost four months, on speculation that a cold start to spring will buoy demand for heating fuel.
Gas rose 0.3 percent as MDA Weather Services predicted that below-normal temperatures will linger in most of the lower 48 states through April 1. The futures have climbed 23 percent from a one-month low on Feb. 15 as unusually cold weather helped reduce a stockpile glut.
“It doesn’t look like this rally is done yet,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The next two weeks, they’re calling for below-normal temperatures. In this push up to $4, we have basically seen a lot of shorts run out of the market.”
Gas for April delivery rose 1 cent to $3.882 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Nov. 23. Prices earlier jumped to $3.965, the highest intraday price since Oct. 31, 2011. Trading volume was 48 percent above the 100-day average at 2:54 p.m. The futures, which have increased 16 percent this year, last traded at $4 in September 2011.
The discount of April contracts to October, a gauge of summer demand for gas, eased 0.9 cent to 13.2 cents, the narrowest spread for the contracts on record, based on closing prices.
May $4 calls were the most active gas options in electronic trading. They fell 0.5 cents to 12 cents per million Btu on volume of 994 contracts as of 2:57 p.m. Calls accounted for 59 percent of the volume.
Implied volatility for at-the-money options expiring in May was 32.48 percent, up from 31.51 percent on March 15.
Hedge funds boosted bets on U.S. natural gas to the highest level on record amid forecasts of colder-than-normal March weather that would stoke demand for the heating fuel, according to the Commodity Futures Trading Commission’s March 15 Commitments of Traders report.
Net-long positions, or wagers on rising prices, on four U.S. natural gas contracts rose by 52,809 futures equivalents, or 27 percent, to 246,306 in the week ended March 12, CFTC data show.
“Colder-than-normal March temperatures mean the 2012/2013 winter will likely end up close to normal, despite the mild weather in December,” Goldman Sachs Group Inc. analysts led by Johan Spetz in New York said in a note to clients yesterday.
This amplified the tightening of the supply-and-demand balance that began last April, he said.
“We see increased upside risk to our price forecasts of $3.75 per million Btu for the second and third quarters of 2013 and $4.25 per million Btu for 2014,” he said.
The low temperature in Chicago on March 20 may be 16 degrees Fahrenheit (minus 9 Celsius), 16 lower than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. New York City’s low on April 1 may be 31 degrees, 9 below normal.
About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm. Gas demand typically slumps between the peak heating-demand season and before hot weather drives power demand to run air conditioners.
Gas inventories declined by 145 billion cubic feet to 1.938 trillion in the week ended March 13, falling below 2 trillion for the first time since May 2011, EIA data show. The five-year average drop for the period is 74 billion.
A supply surplus to the five-year average fell to 11.4 percent from 14.8 percent the previous week. A deficit versus year-earlier levels widened to 18.5 percent, the most since April 2008, from 14.8 percent a week earlier.
The previous winter was the fourth-warmest on record in the contiguous states, cutting demand for heating fuels amid surging gas production.
Gas futures, which rose as much as 2.4 percent today, pared gains late in the trading day on concern that at $4, a “more significant share” of electricity generators will start burning coal instead of gas, said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. This loss of power demand would reverse the progress made this winter in creating a storage deficit, she said.
“It appears that the persistent cold weather for the balance of the winter is insufficient to keep the summer curve supported above $4,” Viswanath said.
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