Natural gas futures advanced to a two-week high in New York as forecasts showed a return to below-normal temperatures that would erode U.S. inventories.
Gas gained 2.2 percent as companies including MDA Weather Services said below-normal temperatures will sweep across the Eastern half the U.S. from Jan. 19 through Jan. 28. Prices jumped yesterday on speculation that a Jan. 16 government report will show a record weekly stockpile decline following a blast of arctic weather.
“It’s going to get cold in areas where you see a lot of demand,” said Eric Bickel, a natural gas analyst at Schneider Electric in Louisville, Kentucky. “They are looking for a record-breaking storage number and that was what elevated the market yesterday. We are seeing some piggybacking on that.”
Natural gas for February delivery rose 9.5 cents to $4.369 per million British thermal units, the highest settlement price since Dec. 30 on the New York Mercantile Exchange. Trading volume was 25 percent above the 100-day average at 2:36 p.m. Prices are up 30 percent from a year ago.
The premium of February to March futures widened 0.4 cent to 5.4 cents. March gas traded 20.1 cents above the April contract, compared with 16.8 cents yesterday.
March $4 puts were the most active options in electronic trading. They were 2.5 cents lower at 9.7 cents per million Btu on volume of 1,445 at 3:12 p.m. Puts accounted for 38 percent of trading volume.
Weather models showed a stronger coastal cold shot coming across the East next week that will pull in more cold behind it, said MDA in Gaithersburg, Maryland. Models also turned a little colder for the Midwest through the Great Plains from Jan. 24 through Jan. 28.
Chicago’s low on Jan. 21 will drop to 5 degrees Fahrenheit (minus 15 Celsius), 13 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The next day, Manhattan’s reading will be 11 lower than average at 16 degrees and Atlanta will be 5 below normal at 26 degrees.
About 49 percent of U.S. households use gas for heating, according to the U.S. Energy Information Administration.
Gas inventories probably fell 300 billion cubic feet last week, based on the median of six analyst estimates compiled by Bloomberg. A decline that size would topple the record of 285 billion in the seven days ended Dec. 13. Estimates ranged from declines of 278 billion to 309 billion. The five-year average drop for the period is 159 billion.
The contiguous states experienced the coldest day of the 21st century on Jan. 7, which falls within the stockpile report period, based on gas-weighted heating-degree days, a measure of energy demand, according to Commodity Weather Group LLC in Bethesda, Maryland. Chicago’s low was minus 11 degrees that day, 29 below normal.
Stockpiles totaled 2.817 trillion cubic feet in the week ended Jan. 3, the EIA reported last week. A deficit versus the five-year average widened to 10.1 percent, the most in government data going back to 2005. Supplies were 15.8 percent below year-earlier levels.
Marketed gas production will climb 2.1 percent in 2014 to a record 71.66 billion cubic feet a day from last year, the EIA said in the Jan. 7 Short-Term Energy Outlook. New wells being connected at the Marcellus shale deposit in the Northeast will help drive those gains, government data show.
“At this point, it’s strictly a weather market,” so prices can challenge the Dec. 23 high of $4.532 per million Btu, said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “I wouldn’t rule out, if Mother Nature cooperates, of seeing $5 before the end of winter.”
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