Natural Gas Heads for Weekly Gain as Cold Cuts Supply

Natural gas futures climbed in New York, heading for the first weekly gain since Jan. 24 as frigid weather spurred heating-fuel demand, sending supplies to a 10-year seasonal low.

Gas gained as much as 3.2 percent. Government data yesterday showed that U.S. stockpiles tumbled 237 billion cubic feet to 1.686 trillion in the week ended Feb. 7, the biggest February drop since 2007. A winter storm that spread snow and ice from Texas to Maine this week is moving out to sea while a second system takes aim at eastern New England.

U.S. gas stocks are the lowest for this 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. Prices climbed 10 percent this week.

“Yesterday’s drawdown was larger than expected, and that’s given the bulls a little bit of control,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “There’s some nervousness about how quickly production can respond if the weather turns colder at the end of the heating season.”

Natural gas for March delivery rose 4.2 cents, or 0.8 percent, to $5.265 per million British thermal units at 12:38 p.m. on the New York Mercantile Exchange. Trading volume was 38 percent above the 100-day average. Gas is up 24 percent in 2014.

March gas traded 58.2 cents above the April contract, compared with 59.1 cents yesterday.

Gas Options

Implied volatility for March at-the-money options was 86.19 percent at 12:30 p.m., compared with 29.84 percent a year ago. Gas is the most volatile component of the Standard & Poor’s GSCI index of 24 commodities.

Yesterday’s storage drop was 46 percent bigger than the five-year average for the week, department data show. A deficit to five-year average inventory levels widened to a record 27 percent from 22 percent the previous week. Supplies were 34 percent below year-earlier inventories, also an all-time high.

“Storage has just been getting machine-gunned with these big withdrawals,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The market has been surprised by this supply tightness in an environment where we supposedly have so much gas that we don’t know what to do with it.”

Gas Stockpiles

Gas stocks 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, the Energy Information Administration said Feb. 11 in its monthly Short-Term Energy Outlook. The EIA is the Energy Department’s statistical arm.

January was the coldest start to a year since 2011, according to the National Oceanic and Atmospheric Administration. About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, EIA data show.

Boston may get 4 to 6 inches (10 to 15 centimeters) of snow from the storm sweeping across the U.S. that’s expected to intensify off the coast tomorrow, the National Weather Service said. New York may get 1 to 3 inches.

Commodity Weather Group LLC in Bethesda, Maryland, forecast 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 16 degrees Fahrenheit, 10 below average.

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