Natural Gas Soars on Biggest Supply Drop in 7 Years

Natural gas futures jumped in New York after a government report showed the biggest February stockpile decline since 2007, as winter storms and frigid weather stoked heating demand across the eastern U.S.

Gas gained 8.3 percent after the Energy Information Administration said inventories tumbled 237 billion cubic feet to 1.686 trillion in the week ended Feb. 7. A storm is bringing heavy snow, sleet and ice from Virginia to Maine after cutting power to more than half a million customers across the South.

Surging demand has depleted U.S. gas stockpiles to the lowest level for the time of year since 2004 even as rising output from shale deposits pushes production to record levels. Gas output in 2014 may climb 2.2 percent, gaining for a ninth consecutive year.

“We’re making some big digs into storage in this cold weather,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “We have all this new production coming online but a lot of it has been hampered by the weather, especially when you have a severe blizzard coming through.”

Natural gas for March delivery rose 40.1 cents to settle at $5.223 per million British thermal units on the New York Mercantile Exchange. It was the biggest one-day gain and highest settlement price since Feb. 4. Trading volume was 35 percent above the 100-day average.

Prices are up 9.4 percent this week, heading for the first gain since the seven days ended Jan. 24. The futures have surged 23 percent this year.

Analyst Estimates

Analyst estimates compiled by Bloomberg showed an expected stockpile decline of 231 billion cubic feet. Today’s drop was 46 percent bigger than the five-year average for the week, department data show.

A deficit to the average widened to a record 27 percent from 22 percent the previous week. Supplies were 34 percent below year-earlier inventories, also a record.

“This latest string easily totals the largest cumulative three-week draw dating back to when the EIA began tracking the data in 1994,” Mike Tran, an analyst at CIBC World Markets in New York, said in a note to clients today.

Gas stockpiles at the end of March, when the heating season draws to a close, will drop to 1.33 trillion cubic feet, the lowest level since 2008, after cold weather contributed to record withdrawals, the EIA said Feb. 11 in its monthly Short-Term Energy Outlook.

Cold Weather

January was the coldest start to a year since 2011, the National Oceanic and Atmospheric Administration said in a report today. 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.

The National Weather Service predicted as much as 16 inches (41 centimeters) of snow for New York, along with wind gusts of 35 miles (56 kilometers) per hour before the storm system moves out of the region tomorrow. Washington has already received 11 inches of snow and parts of New Jersey may see 17 inches, as winter weather alerts stretched north to Maine.

Commodity Weather Group LLC in Bethesda, Maryland, predicted colder-than-normal weather on the East Coast and in the Great Lakes region through Feb 17.

The low in New York on Feb. 16 may be 17 degrees Fahrenheit (minus 8 Celsius), 12 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Cleveland temperatures may fall to 14 degrees Fahrenheit, 12 below average.

March $6 calls were the most active options in electronic trading. They were up 7.5 cents to 13.3 cents per million Btu on volume of 3.068 at 2:46 p.m. Calls accounted for 80 percent of trading volume. Implied volatility for March at-the-money options was 76.44 percent at 2:30 p.m., compared with 38.16 percent a month ago.

(Corrects date in 11th paragraph. Correction made on Feb. 24.)
Before it's here, it's on the Bloomberg Terminal.