Natural gas futures advanced to the highest price in almost 10 months as forecasts for cooler Midwest weather signaled higher demand for heating fuel.
Gas gained 4.8 percent as MDA EarthSat Weather in Gaithersburg, Maryland, predicted below-normal temperatures in the central U.S. over the next six to 10 days. Heating demand nationwide will be 78 percent above normal Oct. 7 through Oct. 11, data from Weather Derivatives in Belton, Missouri, show.
“It’s the first cold blast coming,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “It probably got rid of another layer of shorts in the market.”
Natural gas for November delivery rose 16 cents to $3.48 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Dec. 6. The futures have jumped 24 percent from an intraday low of $2.814 a week ago and are up 16 percent this year.
November $3 puts, bets that prices will fall, were the most active gas options in electronic trading. They were down 2.2 cents to 2 cents on volume of 1,555 contracts at 3:332 p.m.
Fund started snapping up gas futures “significantly” last week at around $3.10 and $3.20 in anticipation of winter and extended those gains today on revised forecasts for October, said John Woods, president of JJ Woods Associates and a Nymex floor trader. “The rest of the month we are looking for cooler-than-initially-anticipated weather. That’s good for a pop.”
Money managers cut speculative bets on higher prices for a ninth straight week, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Sept. 28. Net-long bets on four gas contracts declined 6,537 futures equivalents, or 7.9 percent, to 76,177 in the week ended Sept. 25.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
The low in Chicago on Oct. 10 may be 35 degrees Fahrenheit (2 Celsius), 13 below normal, according to AccuWeather Inc. in State College, Pennsylvania. Boston’s low on Oct. 15 may fall to 10 below the usual reading at 37 degrees.
The heating season from November through March is the peak demand period for U.S. gas consumption. Last winter was the fourth-warmest on record in the lower 48 states, which crimped demand for the fuel and bloated inventories.
Gas has rallied since late August in anticipation of the coming season, Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today. “But with fundamentals so widely divergent from price, the rally can only be characterized as based on hope and is very susceptible to correction, particularly if a substantive hike in heating demand fails to confirm price action fairly soon.”
U.S. stockpiles totaled 3.576 trillion cubic feet in the week ended Sept. 21, 8.6 percent above the five-year average for the period, the Energy Department said last week. The surplus has declined from a six-year high of 61 percent at the end of March as demand from electricity generators jumped because of hotter-than-normal weather and fuel switching from coal.
A technical indicator that measures the magnitude of price gains relative to declines is showing that gas may be overbought. The relative strength index, or RSI, jumped to 72 today from 50 on Sept. 24, the highest since May 18. A number above 70 is seen by some traders as a sell signal.
Gas futures face a psychological resistance level at $3.50 and technical resistance at $3.57, said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami.
Woods says the gas rally may lose steam at around $3.63.
Gas futures volume in electronic trading on the Nymex was 500,666 as of 2:39 p.m., the most since Sept. 11, compared with the three-month average of 369,000. Volume was 416,488 on Sept. 28. Open interest was 1.09 million contracts. The three-month average is 1.11 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.