Natural gas futures jumped in New York, capping the biggest weekly gain in almost 11 months, as forecasts for unusually cool U.S. weather signaled an early start to the peak heating-demand season.
Gas settled at a three-month high as below-normal temperatures were expected from the Great Lakes to the Rocky Mountains from Oct. 16 through Oct. 25, according to MDA Weather Services. Chicago’s low on Oct. 21 may be 35 degrees Fahrenheit (2 Celsius), 9 below normal, AccuWeather Inc.’s website showed.
“We have a bout of cold weather coming through and that’s propping up the price,” said Eric Bickel, a natural gas analyst at Schneider Electric in Louisville, Kentucky. “The fourth quarter becomes more sensitive to weather dynamics when you see the first bit of heating load.”
Natural gas for November delivery gained 5.3 cents, or 1.4 percent, to $3.776 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since July 19. Volume was 7.8 percent above the 100-day average at 2:35 p.m. The futures gained 7.7 percent this week, the most for any week since Nov. 16. Gas is up 13 percent this year.
The discount of November to December futures narrowed 0.1 cent to 15.3 cents. November gas traded 24.7 cents below the January contract, compared with 25.3 cents yesterday.
December $5 calls were the most active options in electronic trading. They were 0.1 cent higher at 0.7 cent per million Btu on volume of 1,410 at 3:18 p.m. Calls accounted for 59 percent of trading volume. Implied volatility for November at-the-money options was 31.96 percent at 2:45 p.m., compared with 30.14 percent yesterday.
The outlook turned colder for the central U.S. six to 10 days from now, said MDA in Gaithersburg, Maryland. The Northeast and mid-Atlantic states will see lower readings from Oct. 21 through Oct. 25.
New York City’s low on Oct. 22 may be 5 below normal at 43 degrees, according to AccuWeather in State College, Pennsylvania.
Almost half of U.S. households rely on gas for heating while 39 percent use electricity, data show from the Energy Information Administration, the statistical arm of the Energy Department. The heating season from November through March is the peak period for gas consumption.
Gas inventories rose 90 billion cubic feet last week to 3.577 trillion, above the five-year average increase of 84 billion for the period, the EIA said yesterday. A surplus to the five-year average widened to 1.6 percent from 1.4 percent the previous week.
The EIA said it would cease operations and furlough its staff today because of the U.S. government shutdown. Jonathan Cogan, a spokesman for the agency in Washington, said in an e-mailed statement that “data releases and analyses will not be published during the furlough.”
There are ample supplies of gas before the heating season, but several weeks of report delays would increase uncertainty, Bickel said. “It’s the worst possible time for the gas market” to not have supply data with the advent of the peak-demand period, he said.
U.S. gas output will increase 1.2 percent this year to average 70 billion cubic feet a day from an all-time high of 69.18 billion in 2012, the EIA estimated in its Oct. 8 Short-Term Energy Outlook. The 2013 estimate was raised from 69.91 billion the prior month as new wells at shale deposits make up for lower output in some dry-gas reserves.
Exelon Corp., the biggest U.S. nuclear generator, is financing startup Annova LNG LLC, which plans to export liquefied natural gas to energy importers such as South Korea and Chile, said two people briefed on the transaction. Annova asked the Energy Department this week for approval to ship as much as 7 million tons a year from a proposed Texas facility, said the people, who asked to not be identified because the information isn’t public.
The Energy Department has so far approved proposal from four LNG terminals expected to come online in late 2015 through 2018. Their combined gas-processing capacity would be 6.37 billion cubic feet a day.
The number of dry-gas rigs fell by 9 this week to 369, the fewest since July 26, Baker Hughes Inc. data today showed. The rig count is down 14 percent this year.
Increased pipeline and processing capacity slated to come online at the end of the year in the Marcellus and Utica shale regions of the Northeast will spur production growth, Shiyang Wang, a New York-based analyst with Barclays Plc, said in a note to clients today.
“This should keep prices range bound during the 2013-14 winter season,” averaging $3.90 per million Btu during the final three months of this year and $4 in the first quarter of 2014, Wang said.
The U.S. produced 87 percent of its own energy in the first six months of this year, on pace to be the highest annual rate since 1986, EIA data show.