April 5 (Bloomberg) -- Natural gas futures in New York surged the most in four months, settling at a 20-month high, as cold weather helped erase a stockpile surplus and Goldman Sachs Group Inc. raised its 2013 gas price forecast.
Gas jumped 4.5 percent, the biggest one-day gain since Dec. 5, as MDA Weather Services predicted below-normal temperatures in north-central states next week while Texas and the Southeast will see hotter-than-normal readings April 15-19. Unusually cold March weather pushed supplies below the five-year average for the first time since 2011, and prompted Goldman Sachs to increased its price outlook by 17 percent.
“We have a little Friday surprise by Goldman,” said John Woods, president of JJ Woods Associates and a Nymex floor trader in New York. “This market does have the potential to move upward. We have an extended period of cold weather and it has taken away the surplus we had.”
Natural gas for May delivery rose 17.8 cents to $4.125 per million Btu on the New York Mercantile Exchange, the highest settlement price since August 2, 2011. Volume was more than double the 100-day average at 2:39 p.m.
The futures climbed 2.5 percent this week, the seventh straight weekly increase, the longest such streak since the period ended Oct. 30, 2009. Prices are up 23 percent this year.
The discount of May contracts to October narrowed 2.9 cents to 8.9 cents, the least for this time of the year for comparable contracts since 2003.
Price gains accelerated after Baker Hughes Inc. said the number of rigs drilling for gas fell to the lowest level since May 1999. The count tumbled 14 this week to 375.
“The cold weather in March means the 2012/13 winter will end up in line with historical averages, despite the mild weather in December,” Johan Spetz, an analyst with Goldman Sachs in New York, said in a report dated yesterday. Spetz raised his estimate for gas prices this year by 65 cents to an average $4.40 per million Btu.
The tightening supply-and-demand balance means prices will have to move higher in the second half of the year to spur production growth after the summer, he said. “We now expect prices will need to average $4.50 per million Btu in the second half of 2013 to bring on the production growth required to balance the market.”
Goldman recommends buying $4.20 call options on November 2013 gas futures, which at the time of the report’s publication were valued at 31 cents, Spetz said.
May $3.80 puts were the most active gas options in electronic trading. They slipped 2.8 cents to 1.6 cents per million Btu on volume of 2,250 contracts as of 3:02 p.m. Puts accounted for 61 percent of options volume.
Implied volatility for at-the-money gas options expiring in May was 28.68 percent at 2:45 p.m., up from 27.06 percent yesterday. June options volatility was 27.84 percent, up from 26.53 percent.
MDA forecasts show that unusually cold weather in the parts of the Midwest next week will shift westward by the middle of the month while the eastern half of the lower 48 states heats up. The average temperature in Minneapolis on April
The low temperature in Chicago on April 12 may be 35 degrees Fahrenheit (2 Celsius), 6 below normal, with a high of 54 degrees, according to AccuWeather Inc. in State College, Pennsylvania. By contrast the high in Dallas may rise to 82 degrees on April 15, 5 above normal.
“You’ve got winter and summer at the same time, which is a natural gas bull’s dream and a natural gas bear’s nightmare,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The fact that storage is below the five-year average, you are going to see prices go up.”
U.S. stockpiles fell by 94 billion cubic feet to 1.687 trillion cubic feet during the week ended March 29, bucking the five-year average change for period of an increase of 4 billion, the Energy Information Administration said yesterday. Analysts surveyed by Bloomberg predicted a decline of 91 billion.
Supplies were 2.1 percent below the five-year average for the week, posting a deficit against the historical norm for the first time since August 2011, according to data from the Energy Department’s statistical unit. A deficit versus year-earlier levels widened to 32 percent from 27 percent the previous week, the most in EIA records going back to 2005.
The next two EIA supply reports may show drawdowns in gas stockpiles before they begin to build up again, said Woods. His early estimate for next week is a drop of 20 billion based on this week’s cold snap. The five-year average change is a gain of 15 billion, government estimates show.
Inventories typically start to increase from April through October to prepare for the next heating season, the peak months for U.S. gas consumption.
Spetz sees supplies at the end of October peaking at 3.65 trillion cubic feet, which EIA data shows would be the lowest level for the time of year since 2008.
U.S. marketed production in 2013 will increase 0.7 percent to a record 69.6 billion cubic feet a day, the slowest pace of growth in eight years, the EIA said in its March 12 monthly Short-Term Energy Outlook.
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