The weather may still be balmy in the U.S., but the specter of winter is already spooking the natural gas market.
Gas futures for January, when demand for the heating fuel is often highest, are trading 53 cents above supplies for delivery in October, when stockpiles usually reach their peak. That’s the biggest price gap since 2010 for this time of year. The premium signals concern that supply constraints will lead to price spikes in the coldest months.
A glut that has weighed on the gas market for months is vanishing as intense heat sweeps the U.S., stoking air-conditioner use and boosting demand from power generators to a record amid a slowdown in output from shale basins. That means inventories may start the winter at a deficit to normal levels for the first time in two years.
“That 53-cent spread is a bet that there may be a perfect storm emerging that could allow prices to really rally,” said John Kilduff, partner at Again Capital LLC in New York. “Even if we get normal weather this winter, we will rip through the gas in storage no matter how high it gets.”
The flow of gas into storage caverns during the stockpiling season, which typically runs from the end of March through October, has been coming in well below seasonal norms. A supply surplus to the five-year average fell to less than 19 percent late last month from 54 percent in early April.
Gas consumption will probably jump five percent from residential, commercial, industrial and power-plant users in the first quarter to 86.85 billion cubic feet a day from the same time last year, according to the U.S. Energy Information Administration.
Speculation is mounting that this winter may be colder than normal in the lower 48 states because of an emerging La Nina weather pattern, which brings below-average ocean surface temperatures that can increase U.S. heating demand.
Even a weak La Nina could boost the number of heating degree days, a measure of weather-driven energy demand based on population, by 21 percent from last winter, Matt Rogers, president of Commodity Weather Group LLC, said in an e-mail Tuesday.