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Natural Gas Futures Advance as Frigid U.S. Weather Boosts Demand

Natural gas futures climbed in New York for the fifth time in six days as a winter storm brought snow and icing to states in the U.S. South, stoking demand for the heating fuel.

Gas gained 3.8 percent after tumbling the most in nine months yesterday. MDA Weather Services in Gaithersburg, Maryland, predicted colder-than-normal weather across most of the U.S. through Feb. 11 as an arctic front sweeps the country. The low in New Orleans today may be 26 degrees Fahrenheit (minus 3 Celsius), 21 less than average, according to AccuWeather Inc. in State College, Pennsylvania.

“Some people are having seller’s remorse after looking at the temperatures overnight,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “It’s still pretty darn cold out there.”

Natural gas for February delivery rose 18.6 cents to settle at $5.033 per million British thermal units on the New York Mercantile Exchange. Trading volume was 27 percent above the 100-day average at 2:40 p.m. The futures have climbed 19 percent this month.

The premium of February to March futures narrowed 8.1 cents to 9.2 cents. The spread reached to 18.4 cents on Jan. 24, the widest for the months since June 2010. March gas traded 54 cents above the April contract, compared with 38.8 cents yesterday.

February $5 calls were the most active options in electronic trading. They were 0.3 cent higher at 3.7 cents per million Btu on volume of 1,085 at 2:40 p.m. Calls accounted for 66 percent of trading volume.

Gas Options

February gas options expired today. Implied volatility for March at-the-money options was 72.2 percent at 2:45 p.m., compared with 32.9 percent a month ago.

The storm extended from the central Gulf Coast to the southern mid-Atlantic coast today, the National Weather Service said. A wintry mix was possible as far south as southern Louisiana.

Commodity Weather Group LLC in Bethesda, Maryland, said January is on track to be the coldest month of the 21st century in the contiguous U.S. in terms of gas-weighted heating degree days, a measure of energy demand. About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

Inventory Report

EIA data scheduled for release Jan. 30 may show that natural gas inventories tumbled 224 billion cubic feet in the seven days ended Jan. 24, according to Donald Murry, an economist at C.H. Guernsey & Co. in Oklahoma City. The five-year average decrease for the week is 162 billion, EIA data show. Supplies dropped by 191 billion a year earlier.

Stockpiles totaled 2.423 trillion cubic feet as of Jan. 17, 13.2 percent below the five-year average and 19.8 percent less than year-earlier supplies.

The number of rigs drilling for gas in the U.S. slid by nine to 356, Baker Hughes Inc. in Houston said Jan. 24. The total is down 18 percent from a year ago.

The gas rally above $5 per thousand cubic feet ($4.89 per million Btu) “is transitory and not sustainable,” Hsulin Peng, an analyst at Robert W. Baird & Co. in New York, said in a note to clients today. “The U.S. market remains awash in natural gas.” Prices may drop to $4 per thousand cubic feet, Peng said.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

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

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