Natural gas futures advanced in New York, heading for the biggest weekly gain since September 2012, as meteorologists predicted sustained below-normal temperatures through the end of the month.
Gas climbed 0.9 percent to the highest price in more than two years as Commodity Weather Group LLC in Bethesda, Maryland, said the cold weather will persist in the eastern half of the U.S. through Feb. 1. A government report today showed that inventories fell 107 billion cubic feet in the week ended Jan. 17 to 2.423 trillion. Analyst estimates compiled by Bloomberg showed an expected drop of 103 billion.
“The storage number was pretty much in line with expectations, but there’s a strong buy in the market right now,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “There’s ongoing cold in the forecasts and we could see very large withdrawals next week and the week after.”
Natural gas for February delivery rose 4.1 cents to $4.73 per million Btu on the New York Mercantile Exchange, the highest settlement since June 10, 2011. Trading volume was 77 percent above the 100-day average at 2:42 p.m. Gas has jumped 9.3 percent this week, heading for the biggest increase since the seven days ended Sept. 28, 2012.
The premium of February to March futures widened 1.2 cents to 15.1 cents. March gas traded 28.9 cents above the April contract, the most since Dec. 23.
Traders should buy the March-April 2014 spread, targeting 45 cents in the next few days or weeks with a stop-loss at 24 cents, Jan Stuart, an analyst at Credit Suisse Group AG in New York, said in a note to clients today.
February $5 calls were the most active options in electronic trading. They were 1.1 cents lower at 2 cents per million Btu on volume of 3,863 at 3 p.m. Calls accounted for 71 percent of trading volume.
The inventory decrease was smaller than the five-year average decline for the week of 181 billion cubic feet, Energy Information Administration data show. A deficit to the five-year average narrowed to 13.2 percent from 14.9 percent the previous week. Supplies were 19.8 percent below year-earlier inventories, compared with 20.7 percent in last week’s report.
Stockpiles may slide to 1.385 trillion cubic feet by March 31, Michael Hsueh, a strategist at Deutsche Bank AG in London, said in a note to clients today. Supplies totaled 1.687 trillion as of March 29 last year.
“We view the U.S. natural gas market as one prone to price spikes, particularly given that storage is already at a low level and we have two more months of winter remaining,” Hsueh said.
Commodity Weather Group LLC in Bethesda, Maryland, said the weather would be colder than usual in the eastern half of the U.S. through Feb. 1. The low in Chicago on Jan. 27 may be minus 13 degrees Fahrenheit (minus 25 Celsius), 31 less than average, according to AccuWeather Inc. in State College, Pennsylvania.
Arctic air has made a return to the U.S. after frigid weather set temperature records across the Midwest earlier this month. Readings dropped to single digits into the South. January is on track to be the coldest month in the lower 48 states since 1994 and this winter may be the coldest since the 1990s, according to Commodity Weather Group.
The low in New York on Jan. 27 may be 12 degrees Fahrenheit, 15 below normal, AccuWeather data show. About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm.
“The models over the past few cycles have again strengthened next week’s outbreak with a serious potential to match the big early-month cold outbreak in terms of intensity, but exceed it in terms of duration, as a rapid warming recovery is not seen this time around,” Matt Rogers, president of Commodity Weather Group, said in a note to clients today.