Natural Gas Caps Weekly Gain on Weather Outlook

Natural gas futures capped the biggest weekly gain in February in New York as unusually chilly weather in the U.S. East may stoke heating demand.

A shot of cold air is expected for the Midwest and East Coast over the next five days, with seasonal readings or lower lingering in the region through Nov. 14, MDA Weather Services said. Chicago’s low on Nov. 10 will drop to 28 degrees Fahrenheit (minus 2 Celsius), 9 below normal, AccuWeather Inc. said on its website.

“The market appears to be getting a little giddy on the forecast change,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The outlook for colder temperatures should result in heavier heating demand and potentially the official start of the winter season.”

Natural gas for December delivery gained 4.6 cents, or 1.2 percent, to $3.873 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Oct. 13. Volume for all futures traded was 55 percent higher than the 100-day average at 2:55 p.m.

Futures rose 6.9 percent this week, the biggest gain since the period ended Feb. 21. Prices dropped 6 percent in October, the first monthly decline since July.

January $3.80 puts were the most actively traded options, slipping 1.5 cents to 18.4 cents on volume of 1,007 as of 3:08 p.m. December $4.25 calls, the second-most active, increased 0.7 cent to 4.5 cents on volume of 777. Calls accounted for 57 percent of trading volume.

Weather models turned colder for the first two weeks of November versus yesterday’s outlook, said MDA in Gaithersburg, Maryland. The chill will ease in the middle of next week in the East before cold air from Canada sends readings lower again in the Midwest and Northeast from Nov. 10 through Nov. 14.

Not Mild

About 49 percent of U.S. households use gas for heating, led by the Midwest and then Northeast, Energy Information Administration data show.

“While current forecasts are not rivaling those of the strongest years in recent history, they are no longer considered mild,” Breanne Dougherty, natural gas analyst for Societe General SA in New York, said in a note to clients yesterday.

Gas inventories probably won’t show the first net withdrawal of the heating season until third week of November, given current weather patterns and production gains, according to Dougherty and Viswanath.

Stockpiles of the heating and power-plant fuel have climbed 2.658 trillion cubic feet since dropping to an 11-year low in March, the fastest pace of injections for the period in EIA data going back to 1994. A supply deficit to the five-year average has narrowed to 8.2 percent from a record 55 percent.

The relative strength index, or RSI, jumped to 54.87 as 3:05 p.m., the most since Oct. 3. The technical momentum indicator rebounded from 32.93 on Oct. 27, the lowest level since July 30. An RSI of 30 is seen by some traders as a technical buy signal while 70 may be a signal to sell.

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