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Natural Gas Rises to Most Since July 2011 on Colder U.S. Outlook

Natural gas rose to the highest level since July 2011 in New York on speculation that an unusually cold start to the new year will stoke heating demand.

Gas rose 1 percent as forecasters including Commodity Weather Group LLC in Bethesda, Maryland, predicted that below-normal temperatures in the central U.S. will spread through the East from Dec. 28 through Jan. 6. Prices jumped 13 percent for this month after a government report last week that a record drop in inventories followed a wave of cold weather.

“The eastern U.S. is expected to get below-normal temperatures in the next two weeks,” said Eric Bickel, a natural gas analyst at Schneider Electric in Louisville, Kentucky. “It’s warm out there right now, so that’s definitely what traders are pinning their expectations on.”

Natural gas for January delivery gained 4.5 cents to $4.463 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 20, 2011. Volume was 23 percent below the 100-day average at 2:36 p.m. Gas is up 33 percent this year, heading for the biggest annual gain since 2005.

The discount for January futures to February widened 0.7 cent to 5.6 cents. March gas traded 30.8 cents above the April contract, compared with 27.8 cents on Dec. 20.

Options Trading

February $4 puts were the most active options in electronic trading. They were 0.8 cent lower at 2.9 cents per million Btu on volume of 3,578 at 2:51 p.m. Puts accounted for 45 percent of trading volume.

This heating season, the period from November through March, has displayed a “higher-than-normal level of volatility, meaning sharp swings in expectations and realized weather,” Matt Rogers, president of Commodity Weather, said in a note to clients today. The strongest push of cold in the next two weeks will be in the Midwest, followed by the Deep South and the East Coast, he said.

The high in Chicago on Dec. 26 will be 18 degrees Fahrenheit (minus 8 Celsius), 15 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

New York City’s high will drop to 28 degrees, 11 lower than average, on Jan. 3. It surged yesterday to a record 71 degrees, 30 above normal, as the East Coast saw a wave of unusually warm weather, AccuWeather said.

About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm. The heating season is the peak demand period for the fuel in the lower 48 states.

Warmth Fading

“The extremely warm weather did impact demand, but those warm temperatures are fading fast, and Christmas Day in the New York region will be frigid,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today.

U.S. inventories fell by 285 billion cubic feet in the week ended Dec. 13 to 3.248 trillion, the biggest decline ever based on EIA records back to 1994. Supplies were 7.4 percent below the five-year average for the period compared with 3 percent the previous week. A deficit versus year-earlier levels widened to 13. 1 percent from compared with 7.2 percent.

Money managers raised bullish bets on natural gas for a fourth straight week, reaching a six-month high, U.S. Commodity Futures Trading Commission data show.

Net-long positions climbed 90,360 futures equivalents, or 33 percent, to 361,428 in the week ended Dec. 17, the most since June 11. Bearish bets slid by 31,066, while long positions advanced by 59,294.

“The run toward $5 remains intact; demand is sufficient to generate robust withdrawal data, and the bullish narrative concerning gas being underpriced continues to play out,” Kilduff said.

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