Natural gas surged to a four-year high in New York as forecasts for tumbling stockpiles during a frigid winter prompted the strongest rally in 19 months.
Gas jumped 10 percent, the biggest percentage gain since June 14, 2012, on the last day of trading for February futures. WSI Corp., an Andover, Massachusetts-based forecaster, said the weather may be colder than usual in most of the contiguous U.S. from Feb. 3 through Feb. 7. A government report tomorrow may show that stockpiles slid 231 billion cubic feet last week, compared with a five-year average drop of 162 billion, according to the median of 15 analyst estimates compiled by Bloomberg.
“It looks like a short squeeze,” said Aaron Calder, an analyst at Gelber & Associates in Houston. “We usually see a flurry of activity toward the end of expiration day, but this is kind of crazy. Traders are pricing in a very cold February, stronger storage withdrawals and concerns about low inventory levels at the end of the winter.”
Natural gas for February delivery jumped 52.4 cents to $5.557 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Jan. 25, 2010. Trading volume was 46 percent above the 100-day average at 2:50 p.m. Prices are up 31 percent this month, heading for a fourth consecutive monthly gain.
The March contract, which becomes the front month tomorrow, climbed 52.4 cents, or 11 percent, to $5.465 per million Btu. March gas traded at a record 90.4 cents above the April contract, compared with 54 cents yesterday.
“It was crazy,” said Cindy Wexler, an independent gas trader on the floor of the New York Mercantile Exchange. “There were people that kept on coming in and coming in. I imagine this was a short squeeze, it had to be. It’s expiration and for the last half an hour you always have a lot of extra volatility.”
March $6.60 calls were the most active options in electronic trading. They were 17 cents higher at 30 cents per million Btu on volume of 3,752 at 2:50 p.m. Calls accounted for 77 percent of trading volume.
Implied volatility for March at-the-money options was 87.76 percent at 3 p.m., compared with 32.87 percent a month ago.
Gas stockpiles totaled 2.423 trillion cubic feet as of Jan. 17, 13.2 percent below the five-year average and 19.8 percent less than year-earlier supplies, U.S. Energy Information Administration data show. Inventories may drop to 1.1 trillion cubic feet by March 31, according to Mizuho Securities USA Inc., which would be the lowest since 2004.
“The storage number is going to come in pretty big,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Inventory levels at the end of the heating season are going to be knocked down even further.”
The weekly report from the EIA, the Energy Department’s statistical arm, is scheduled for release at 10:30 a.m. tomorrow in Washington.
The low in Chicago on Feb. 5 may be 8 degrees Fahrenheit (minus 13 Celsius), 11 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Boston temperatures may fall to 22 degrees, 1 below normal.
Commodity Weather Group LLC in Bethesda, Maryland, said January is on track to be the coldest month of the 21st century in the contiguous U.S. in terms of gas-weighted heating degree days, a measure of energy demand. About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm.
The number of rigs drilling for gas in the U.S. slid by nine to 356, Baker Hughes Inc. in Houston said Jan. 24. The total was down 18 percent from a year ago.
In his State of the Union address yesterday, President Barack Obama called on Congress to assist his administration in creating shale “growth zones” aimed at ensuring that natural gas extracted using hydraulic fracturing is produced safely while supporting local economies.
Obama said he would “cut red tape” to help states build factories that use natural gas.
“Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas,” he said.
The relative strength index, or RSI, for gas futures jumped to 74.7 from 66.94 yesterday. A number above 70 is seen by some traders as a sell signal, while a number below 30 can be a signal to buy.