Natural Gas Surges to 2-Year High as Cold Weather Erodes Supply

Natural gas jumped in New York, closing at the highest price in more than two years, on forecasts for colder-than-normal weather that would deplete stockpiles of the heating fuel.

Gas gained 1.7 percent as Commodity Weather Group LLC predicted below-normal temperatures in the eastern half of the U.S. through Dec. 16. The Energy Information Administration said today that U.S. inventories slid 81 billion cubic feet last week, compared with the five-year average drop of 76 billion for the period.

“This storage report is a calm in the middle of the storm,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “We saw a strong withdrawal last week and next week’s drop could exceed 200 billion cubic feet. We’re going to see larger inventory withdrawals due to the intense cold.”

Natural gas for January delivery rose 7.2 cents to $4.409 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 20, 2011. Trading volume was more than double the 100-day average at 2:44 p.m. Prices have advanced 32 percent this year.

The premium of January to February futures widened 0.2 cent to 0.8 cent. March gas traded 19.3 cents above the April contract, compared with 13.3 cents yesterday.

February $5.50 calls were the most active options in electronic trading. They were 2.3 cents higher at 4.5 cents per million Btu on volume of 2,332 at 3:07 p.m. Calls accounted for 69 percent of trading volume.

Cold Weather

The low in New York on Dec. 15 may be 22 degrees Fahrenheit (minus 6 Celsius), 10 less than average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Chicago may fall to 17 degrees, 6 below normal.

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

“The temperature forecasts have been looking pretty bullish,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

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 said in a Nov. 25 seasonal outlook.

Gas stockpiles totaled 3.533 trillion cubic feet in the week ended Dec. 6, 3 percent below the five-year average and 7.2 percent less than last year’s supplies for the period, today’s EIA report showed.

Spring Stockpiles

Inventories may fall to 1.574 trillion cubic feet by the end of March, about 232 billion below the five-year average level for the period, if temperatures are mostly normal after Dec. 25, Michael Hsueh, a strategist at Deutsche Bank AG in London, said in a note to clients today. Supplies totaled 1.687 trillion as of March 29 this year, EIA data show.

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.

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