Natural Gas Jumps to 7-Month High on Outlook for Inventory Drop

Natural gas rose to a seven-month high in New York on speculation that frigid weather will lead to bigger-than-normal declines in stockpiles of the heating fuel.

Gas gained 2.4 percent as a midday update to the National Weather Service’s Global Forecast System model showed a wide swath of below-normal temperatures in the contiguous U.S. through Dec. 25. A government report tomorrow may show that inventories fell by 85 billion cubic feet last week, compared with the five-year average decrease of 76 billion for the period, according to the median of 18 analyst estimates compiled by Bloomberg.

“January is usually the month with the most heating demand, but we’re already seeing significant withdrawals from gas storage early in the season,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “Investors are seeing this as an opportunity to take some long positions.”

Natural gas for January delivery rose 10 cents to $4.337 per million British thermal units on the New York Mercantile Exchange, the highest settlement since April 30. Trading volume was more than double the 100-day average at 2:56 p.m. Prices have climbed 29 percent this year.

The premium of January to February futures was unchanged at 0.6 cent. March gas traded 13.3 cents above the April contract, compared with 7.6 cents yesterday.

Gas Options

February $5 calls were the most active options in electronic trading. They were 2.5 cents higher at 5.8 cents per million Btu on volume of 1,422 at 4:13 p.m. Calls accounted for 59 percent of trading volume.

The low in New York on Dec. 17 may be 30 degrees Fahrenheit (minus 1 Celsius), 2 below average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Minneapolis may slip to minus 1 degree, 13 lower than usual.

About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

The U.S. may have 3.4 percent more heating-degree days, a measure of weather-driven energy demand, from November to March compared with the same period last year, Commodity Weather Group LLC in Bethesda, Maryland, said in a Nov. 25 seasonal outlook.

Gas stockpiles were 2.8 percent below the five-year average and 5.2 percent less than last year’s supplies for the seven days ended Nov. 29, the EIA’s supply report last week showed. The inventory drop of 162 billion cubic feet was the biggest November decline in records going back to 1994.

Gas Output

Gross gas production in the lower-48 states slid 0.8 percent in September to 73.91 billion cubic feet a day from a revised 74.49 billion the previous month, the EIA said Dec. 6 in its monthly EIA-914 report. Output fell as a gas plant shut in Wyoming and producers in Louisiana reported maintenance and “normal well declines,” the agency said.

Growth in domestic natural gas production and rising pipeline imports may limit China’s demand for liquefied natural gas shipments from countries including the U.S., Biliana Pehlivanova, an analyst at Barclays Plc in New York, said in a note to clients today. China may produce 7.7 billion cubic feet a day of shale gas by 2020, according to Barclays.

“Recent developments suggest that Chinese LNG imports will increasingly depend on their price competitiveness in the country’s supply mix,” Pehlivanova said.

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