Natural gas futures rose to a four-month high after forecasts showed colder-than-normal weather in the U.S., boosting demand for the heating fuel.
Gas advanced 3.2 percent after the National Weather Service reduced its temperature forecasts for eastern states from Dec. 11 to Dec. 15. Gas prices were trading at the lowest level since 2002 for the beginning of December.
“Cold weather is the primary driver of gas prices,” said Brad Florer, a trader at Kottke Associates Inc., an energy trading firm in Louisville, Kentucky. “It looks like below-normal temperatures are going to hang on for most of the month, and that’s stifling the selling and lifting gas off the bottom.”
Natural gas for January delivery gained 13.9 cents to $4.488 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Aug. 5. Gas has risen 7.4 percent this month.
New York will have a low of 29 degrees Fahrenheit (minus 2 Celsius) on Dec. 8, 5 degrees below average, according to AccuWeather Inc. in State College, Pennsylvania. Chicago will have a low of 12 degrees, 13 degrees below normal.
Temperatures will be about 8 to 14 degrees Fahrenheit below normal this week and next week in the East and Midwest, according to Commodity Weather Group LLC in Bethesda, Maryland.
About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.
“The weather is colder than expected,” said Kyle Cooper, director of research for IAF Advisors in Houston. “A lot of people had expectations for a warm December.”
Gas inventories fell 23 billion cubic feet in the week ended Nov. 26 to 3.814 trillion cubic feet, the Energy Department reported last week.
The stockpile drop was smaller than the five-year average withdrawal for the week of 36 billion cubic feet, department data show. A surplus to the five-year average rose to 10 percent from 9.5 percent the previous week.
“The storage level is still very high but this is a more weather-driven market,” Cooper said.
The number of U.S. gas drilling rigs rose for a second week to 961 in the week ended Dec. 3, according to data published by Baker Hughes Inc. The rig count was 28 percent higher than a year earlier.
Bank of America Merrill Lynch cut its U.S. gas price forecast for next year, citing a “well-saturated” market.
The bank cut its estimate to $4.60 per million Btu from $5 previously, analysts headed by Francisco Blanch in New York said in a report dated Dec. 3.
“Rigs need to fall by at least 20 to 25 percent over the course of 2011 in order to significantly slow the pace of new supply and thus support prices,” the bank said.
U.S. gas production climbed 3.7 percent to 75.14 billion cubic feet a day in September from a revised 72.44 billion in August, the Energy Department said on Nov. 29 in a monthly report known as EIA-914.
The report covers gas gross withdrawals, which include gas used for repressuring, quantities vented and flared, and non-hydrocarbon gas removed in treating or processing operations.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 24.05 cents, or 5.7 percent, to $4.4743 per million Btu on the Intercontinental Exchange, the highest level since Aug. 9.
Gas futures volume in electronic trading on the Nymex was 290,789 as of 2:38 p.m., compared with a three-month average of 273,000. Volume was 179,478 on Dec. 3. Open interest was 756,922 contracts, compared with the three-month average of 796,000. The exchange has a one-business-day delay in reporting open interest and full volume data.