Natural gas futures advanced to the highest price in in more than a year after a government report showed a bigger-than-forecast inventory decline.
Gas gained 1.9 percent after the Energy Department said U.S. stockpiles fell 38 billion cubic feet last week to 3.873 trillion. Analyst estimates compiled by Bloomberg showed a decrease of 28 billion and a survey of Bloomberg users predicted a drop of 30 billion.
“That’s a big number; 38 bcf is a game changer,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “That is stronger than weather patterns would have suggested. If you’re of the mindset that demand wasn’t driving this, rather this was a supply issue and a function of producers cutting back, then this is going to be structurally helpful.”
Gas for December delivery rose 7.1 cents to $3.903 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Oct. 31, 2011. The futures are up 15 percent from a year ago.
An assault on $4 gas prices is “imminent” amid rising seasonal demand and persistently high nuclear outages, Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today.
December $4 calls were the most active options in electronic trading. They rose 0.7 cent to 3.1 cents on volume of 1,208 lots at 4 p.m. Calls accounted for 57 percent of the volume today.
Stockpiles in the so-called producing region in the south-central U.S. were cut by 7 billion cubic feet because one or more producers reclassified supplies from working gas, or inventories available for delivery, to base gas, or supplies needed to maintain adequate pressure, the Energy Department said. This increased the implied net withdrawal to 38 billion cubic feet last week from 31 billion in the lower 48 states, the agency said.
“This marks the largest draw in this calendar week since 2000,” Mike Tran, an analyst with CIBC World Markets Inc. in New York, said in a note to clients today. “The first couple weeks of this month registered as the coldest start to November seen over the past five, and the cold doesn’t appear to be letting up.”
The five-year average change for the week ended Nov. 16 was a gain of 3 billion, department data show. A gas surplus to the historical norm fell to 4.5 percent from 5.6 percent the previous week.
Temperatures will be below normal on the East Coast and in the Midwest from Nov. 26 through Nov. 30, according to Commodity Weather Group LLC in Bethesda, Maryland. The forecaster revised its outlook for December weather to colder than last year and below the 10-year average, Matt Rogers, president of CWG, said yesterday.
The low in New York on Nov. 30 may be 27 degrees Fahrenheit (minus 3 Celsius), 10 below the usual reading, according to AccuWeather Inc. in State College, Pennsylvania.
The gas-weighted heating-degree days value, a measure of fuel demand, for December will probably be 879, or 28 more than the previous forecast and 109 higher than last year, CWG said.
About 50 percent of the nation’s households use gas for heating, department data show.
Nuclear generation has averaged 75,281 megawatts so far this month, 12 percent lower than the average output of 85,469 megawatts the same time last year, according to daily U.S. Nuclear Regulatory Commission data compiled by Bloomberg.
The unexpectedly large number of nuclear shutdowns “is boosting natural gas demand this month,” based on a combination of planned and unplanned shutdowns, said Shiyang Wang, an analyst with Barclays Plc in New York.
If all of the shut nuclear capacity was replaced by base-load gas generation, it would boost gas use by 2.2 billion cubic feet a day, Wang said. She expects output for the next two months to fall below year-earlier levels, which may increase incremental daily gas demand of 675 million cubic feet in December and 340 million in January.
U.S. marketed gas production will average 68.84 billion cubic feet per day this year, 4 percent higher than last year’s record of 66.22 billion, the Energy Department said in its Nov. 6 Short-Term Energy Outlook. The department predicted that output will hold steady next year after rising for seven consecutive years.
Gas futures volume in electronic trading on the Nymex was 311,930 as of 2:51 p.m., compared with the three-month average of 364,000. Volume was 234,328 yesterday. Open interest was 1.16 million contracts. The three-month average is 1.14 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.