Natural Gas Gains Most in 3 Weeks on Outlook for Colder Weather

Natural gas futures in New York climbed the most in three weeks on forecasts for below-normal temperatures that would boost consumption of the heating fuel.

Gas advanced 4.2 percent after MDA Weather Services in Gaithersburg, Maryland, predicted colder-than-usual weather in the Northeast and Great Lakes region from Jan. 21 through Jan. 25. A report from the U.S. Energy Information Administration yesterday showed that inventories of the fuel last week fell by the most since February 2011.

“The shift in the weather is what’s giving us this price support,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The inventory number yesterday was the biggest withdrawal in two years.”

Natural gas for February delivery rose 13.4 cents to settle at $3.327 per million British thermal units on the New York Mercantile Exchange. Trading volume was 26 percent above the 100-day average at 2:36 p.m.

The futures have climbed 20 percent from a year ago and gained 1.2 percent this week.

April $2.50 puts were the most active gas options in electronic trading. They were 0.3 cent lower at 0.7 cent per million Btu on volume of 1,370 contracts as of 2:39 p.m. Puts accounted for 57 percent of options volume.

Gas for March delivery narrowed to 0.9 cent above the February contract from 1.5 cents yesterday.

The low in New York on Jan. 21 may be 22 degrees Fahrenheit (minus 6 Celsius), 5 lower than usual, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 13 degrees, 10 below normal.

Weather Impact

About 50 percent of U.S. households use gas for heating, according to the EIA, which is part of the Energy Department.

The forecasts are “decidedly more supportive for higher levels of natural heating-related consumption than those from just a week ago,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients today.

The number of rigs drilling for gas in the U.S. dropped by 5 this week to 434, data from Baker Hughes Inc. in Houston showed today. The total is down 45 percent from a year ago.

The supply report yesterday showed that inventories fell 201 billion cubic feet in the seven days ended Jan. 4 to 3.316 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected drop of 191 billion.

A surplus to the five-year average fell to 10.7 percent from 12.4 percent the previous week. Supplies were 2.6 percent below year-earlier inventories, the widest deficit since September 2011.

Price Outlook

The EIA increased its estimate for 2013 natural gas prices, citing more normal winter heating demand compared with last year. Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.74 per million British thermal units, compared with the previous estimate of $3.68 and $2.75 in 2012, the EIA said Jan. 8 in its monthly Short-Term Energy Outlook.

Natural gas output in the lower-48 states rose to an all-time high in October as more of the fuel was pumped from shale formations in the Northeast and North Dakota, the administration said Jan. 7.

Gross gas production increased 0.4 percent to 73.54 billion cubic feet a day from a revised 73.22 billion in September, the agency said in the monthly EIA-914 report.

Supplies from the “other states” category rose 1.8 percent to 23.94 billion cubic feet a day from a revised 23.51 billion in September. Production in that region advanced “as operators reported new wells coming online in the Marcellus and Bakken shale plays,” the EIA said.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first nine months of last year, government data show. If the trend lasted through 2012, it will be the highest level of self-sufficiency since 1991.

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