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Natural Gas Surges as Forecasts Show Arctic Cold Persisting

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Natural Gas Well
A rig hand removes drill pipe from a natural gas well at a hydraulic fracturing site located atop the Marcellus shale rock formation in Washington Township, Pennsylvania. Photographer: Ty Wright/Bloomberg

Feb. 4 (Bloomberg) -- Natural gas futures jumped in New York, rising for the first time in four days, on forecasts for a polar blast that would deplete stockpiles of the heating fuel.

Gas gained 9.6 percent as MDA Weather Services predicted below-normal temperatures in most of the lower-48 states through Feb. 13. An Energy Information Administration report Feb. 6 may show that inventories slid by 266 billion cubic feet last week, up from the five-year average decrease of 151 billion, according to the median of seven analyst estimates compiled by Bloomberg.

“We’re seeing another blast of cold weather, especially in the heart of natural gas consumption territory in the Midwest,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “Traders are getting nervous about this week’s storage withdrawal number.”

Natural gas for March delivery rose 47 cents to settle at $5.375 per million British thermal units on the New York Mercantile Exchange. Trading volume was 17 percent above the 100-day average at 2:40 p.m. Gas futures have climbed 27 percent this year. Today’s gain was the biggest since Jan. 29.

March gas traded 71 cents above the April contract, compared with 39.8 cents yesterday.

March $6 calls were the most active options in electronic trading. They were 20.3 cents higher at 33 cents per million Btu on volume of 2,279 at 2:56 p.m. Calls accounted for 61 percent of trading volume.

Average daily volume for all Nymex natural gas contracts was 736,238 last month, a 30 percent increase over January 2013, CME Group Inc., which owns the exchange, said in a statement today. Gas options traded electronically reached a single-day volume record of 75,778 lots on January 24.

Gas Volatility

Implied volatility for March at-the-money options was 96.99 percent at 2:45 p.m., compared with 33.3 percent a month ago.

“The next winter storm is ready to impact the Plains and Midwest with snow and ice Tuesday into Wednesday,” the U.S. National Weather Service said on its website. “Heaviest snow is forecast from central Kansas through central Missouri and Illinois, into central Indiana.”

The same system may bring a foot of snow to northern Pennsylvania into central New England tomorrow, the weather service said.

The low in Chicago on Feb. 6 may be minus 5 degrees Fahrenheit (minus 21 Celsius), 25 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Cleveland temperatures may plummet to minus 2 degrees, 27 below normal.

Cold January

Commodity Weather Group LLC in Bethesda, Maryland, said January was the coldest first month of the year in the contiguous U.S. since 1994, in terms of gas-weighted heating degree days, a measure of energy demand. About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, according to the EIA, the Energy Department’s statistical arm.

Gas stockpiles totaled 2.193 trillion cubic feet as of Jan. 24, 16.6 percent below the five-year average and 22.5 percent less than year-earlier supplies.

Gas will probably average at least $4 per million Btu over the next two years as low coal inventories “have impaired natural gas’ primary competitor,” Subash Chandra, an analyst at Jefferies LLC in New York, wrote in a note to clients today.

The gas market may have a “deliverability crisis” in February for the first time in five years if the weather is exceptionally cold, Chandra said. He reduced his end-of-season storage estimate to 1.2 trillion cubic feet from 1.3 trillion.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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