Natural gas futures climbed to an 18-month high in New York as an unusually cold start to spring in the U.S. may bolster demand for the heating fuel.
Gas rose 2.2 percent after a midday update to government forecasting models showed colder weather for the Midwest and East from March 29 through April 2, said Jim Southard, a meteorologist with Frontier Weather Inc. in Tulsa, Oklahoma. Earlier predictions showed seasonal to slightly below-normal temperatures. Prices have jumped 18 percent this year as waves of frigid weather helped reduce a supply glut.
“There has been a lot of bullish money thrown at this market since the end of February,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “We had a nice rally. It’s cold now but in a couple of weeks we’ll have less weather-related demand.”
Gas for April delivery jumped 8.7 cents to $3.969 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Sept. 14, 2011. Trading volume was 34 percent above the 100-day average at 2:36 p.m. Open interest yesterday rose to 1.32 million contracts, setting a record for a second straight day.
April $4 calls were the most active gas options in electronic trading. They rose 1.8 cents to 5 cents per million Btu on volume of 938 contracts as of 3:03 p.m. Calls accounted for 54 percent of the volume.
Implied volatility for at-the-money options expiring in May was 32.84 percent at 3 p.m., up from 32.32 percent yesterday.
“For many people, this rally has far exceeded anything they thought they would see,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago.
A storm along the East Coast spread rain from the Massachusetts Turnpike south into southern New England and New York. From 8 to 14 inches (20 to 36 centimeters) may pile up in New Hampshire and Maine, said Scott Kaplan, a meteorologist with Hometown Forecast Services Inc. in Nashua, New Hampshire.
Spot gas at Algonquin City Gates, which includes deliveries to Boston, jumped 27 percent to $11.0562 per million Btu on the Intercontinental Exchange, the highest price since Feb. 20.
Temperatures are expected to stay below normal throughout the eastern U.S. into April, according to Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland.
Readings from March 24 to 28 will be about 8 degrees Fahrenheit (4 Celsius) below normal through the center of the country and about 3 degrees lower in the Northeast, Rogers said. The cold will moderate a bit from March 29 to April 2, with temperatures ranging from 3 to 5 degrees colder than normal from Great Plains to the Atlantic coast.
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 inventories probably fell by 71 billion cubic feet last week, based on the median of seven analyst estimates compiled by Bloomberg. The five-year average decline for the period is 26 billion, according to the EIA, which is scheduled to release its weekly gas supply report on March 21.
U.S. stockpiles totaled 1.938 trillion cubic feet in the week ended March 8, falling below 2 trillion for the first time since May 2011, EIA data show.
A surplus to the five-year average fell to 11.4 percent from 14.8 percent the previous week. A deficit to year-earlier levels widened to 18.5 percent, the most since April 2008.
“If the trend continues, storage levels may be in line with the five-year average” at the end of the withdrawal season, Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today. “The price curve is not encouraging storage at the moment either.”
The discount of April contracts to October, a gauge of summer demand for gas, eased 1.1 cents to 12.1 cents. The spread over the past month has been the narrowest for this time year going back to 2003.
Fitzpatrick expects gas futures to rise above $4 and then sell off, to consolidate in the $3.45-to-$3.60 range.
“Storage levels will build smartly, once April arrives,” he said.