Natural gas jumped to a 16-week high in New York, capping its biggest weekly gain in almost two months, on speculation that a late cold blast heading into spring will boost heating demand.
Gas rose 1.6 percent as Commodity Weather Group LLC said below-normal temperatures in northern states over the next five days will spread across the East from March 20 through March 29. Prices climbed 3.6 percent yesterday as open interest jumped close to last April’s record after a government report showed a bigger-than-forecast supply drop.
“You have the continuation of colder weather expected into the balance of next week and it looks like the start of April might also be cooler,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “With that consistent pattern of colder weather coupled with a heavier-than-anticipated storage withdrawal last week, you are seeing some follow-through buying.”
Gas for April delivery rose 6 cents to $3.872 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Nov. 23. Volume was more than double the 100-day average at 2:43 p.m. Prices climbed 6.7 percent this week, the fourth straight gain and the biggest weekly increase since Jan. 18. Prices are up 70 percent from a year ago.
The discount of April contracts to October, a gauge of summer demand for gas, narrowed 0.4 cent to 14.1 cents, smallest differential since Oct. 19.
May $3.40 puts were the most active gas options in electronic trading. They fell 0.5 cent to 1.9 cents per million Btu on volume of 2,137 contracts as of 2:46 p.m. Puts accounted for 44 percent of the volume. May $4.35 calls, the second most active options, gained 0.8 cent to 3.4 cents on volume of 2,062 contracts.
Implied volatility for at-the-money gas options expiring in April was 33.87 percent at 3:15 p.m., down from 34.32 percent yesterday. May options volatility was 31.77 percent, up from 31.19 percent.
The low in New York City on March 20 will drop to 28 degrees Fahrenheit (minus 2 Celsius), 8 below the usual reading. Detroit may be 8 below normal at 22 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm. Gas demand typically slumps between the peak heating-demand season and before hot weather drives power demand to run air conditioners.
Gas stockpiles fell by 145 billion cubic feet to 1.938 trillion in the week ended March 13, declining below 2 trillion for the first time since May 2011, the EIA report yesterday showed. The five-year average drop for the period is 74 billion.
A surplus to the five-year average dropped to 11.4 percent from 14.8 percent the previous week. A deficit versus year-earlier levels widened to 18.5 percent, the most since April 2008, from 14.8 percent a week earlier.
Output from U.S. nuclear plants slipped 845 megawatts to 82,464 megawatts today, or 81 percent of capacity, the least since Nov. 30, according to U.S. Nuclear Regulatory Commission data compiled by Bloomberg. Generation was 2.7 percent below the five-year average of 84,716 megawatts for the day.
Reactor maintenance shutdowns, usually undertaken in the U.S. spring or fall, when energy use is lowest, may increase consumption of natural gas and coal to generate electricity.
U.S. gross gas production in December declined for the first time in four months, capping the slowest annual growth rate in three years, according to the monthly EIA-914 report on Feb. 28. Output slipped 0.7 percent to 82.57 billion cubic feet a day as operators in Louisiana, Texas and the Gulf of Mexico shut wells. Production was up 0.6 percent from December 2011.
The gas-rig count rose by 24 this week to 431, the most since Jan. 25, data from Baker Hughes Inc. show. The total is down 35 percent from a year ago.
The relative strength index jumped to 74.809 as of 3:21 p.m., the highest level since May 2011. A number above 70 is considered by some traders to be a signal to sell contracts while a number below 30 may be a sell signal.
“It’s definitely overbought, but as of yet there is no bearish RSI divergence,” said Walter Zimmerman, chief technical strategist at United-ICAP, a brokerage in Jersey City, New Jersey.
Right now, RSI is moving higher in sync with gas futures, unlike last October, when the RSI started to drop while prices continued to rally into late November, he said. “It was a leading indicator, not a signal for an immediate exit.”
Nymex gas open interest jumped to 1,306,769 contracts yesterday, near the all-time high of 1,308,114 contracts on April 20, 2012. Open interest has risen 7.7 percent this month.