Natural Gas Rises From 2-Year Low as Arctic Air Boosts Demand

Natural gas rose from a two-year low in New York as a blast of wintry weather boosted demand for the heating fuel.

Cold air will sweep the central and eastern U.S. over the next five days, said Commodity Weather Group LLC. The low in Chicago overnight will drop to minus 3 degrees Fahrenheit (-19 Celsius) with the high tomorrow of minus 1, according to the National Weather Service. Prices have dropped to two-year lows below $3 per million British thermal units after an unusually mild start to the heating season.

“This has become a show-me market,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “There is some hesitation to reset the range in prices closer to $2.50 with more than half the season ahead and the prospect of another cold outbreak.”

Natural gas for February delivery rose 5.6 cents, or 1.9 percent, to $2.938 per million Btu on the New York Mercantile Exchange after settling yesterday at $2.882, the least since Sept. 24, 2012. Volume for all futures traded was 7.9 percent below the 100-day average at 2:56 p.m. Prices have dropped 24 percent since the end of October.

February $2.50 puts were the most active options in electronic trading. They fell 0.3 cent to 2.5 cents on volume of 1,002 contracts at 2:58 p.m.

New York

New York City’s Central Park may see less than 1 inch (3 centimeters) of snow today with a low of 22 degrees overnight, the weather service said. About 49 percent of U.S. households use gas for heating, led by the Midwest, according to the Energy Information Administration.

Demand today for the heating fuel in the lower 48 states increased 3.8 percent to 120.1 billion cubic feet, the most since Jan. 28, according to LCI Energy Insight in El Paso, Texas.

“The big story on the gas front is the expectation for another warm-up in the 11-20 day period after the stronger cold over the next 10 days,” Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in an e-mail today.

Spot prices for delivery to Transco Zone 6 for New York City jumped 35 percent to $16.5204 per million Btu on the Intercontinental Exchange from yesterday, the most since March 12. Fuel oil in New York was cheaper than gas yesterday and today for the first time since March.

Gas at Algonquin City Gates, which includes Boston, advanced 30 percent to $12.9377 per million Btu, a one-month high.

Price Outlook

Gas futures had “collapsed due to oversupply amid a milder end to 2014,” Anthony Yuen, a commodity strategist at Citigroup Inc., said in a report e-mailed today. The bank cut its price outlook for this year to $2.70 per million Btu from a previous forecast for $3.70, while the estimate for 2016 was reduced to $3 from $4.20.

“The key reason for such a bearish price shift is the phenomenal growth of production,” Yuen said. “The growth momentum of production would likely continue in 2015 before effectively stalling in 2016.”

U.S. gas output may see a 10th consecutive year of growth, according to the EIA. Output from the Marcellus shale formation in the East may rise to 16.3 billion cubic feet a day this month, up 19 percent from a year earlier, the EIA said Dec. 8 in its monthly Drilling Productivity Report.

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