Natural Gas Gains on Forecasts for Frigid February Start

Natural gas futures gained the most in a week in New York as forecasts turned colder for the start of February, signaling increased demand for the heating fuel.

Below-normal temperatures in the Northeast over the next five days will be followed by colder weather, which will spread into the Midwest and South Jan. 28 through Feb. 6, said Commodity Weather Group LLC. Gas prices are trading at the lowest seasonal levels since 2012 as winter in the U.S. so far has been milder than it was a year ago.

“The market has kind of firmed up on the idea that we are supposed to see much-below normal temperatures in the Northeast for the next seven to 10 days,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “Fluctuating weather doesn’t make a case for a push significantly higher.”

Natural gas for February delivery rose 15.1 cents, or 5.3 percent, to $2.986 per million British thermal units on the New York Mercantile Exchange, the biggest increase since Jan. 14. Futures slid 4.5 percent this week, capping the eighth drop in nine weeks.

Price volatility jumped in the past two weeks as the intensity of cold changed in computer models for the Midwest and Northeast, the biggest consuming regions for the heating fuel. The 10-day average volatility for Nymex front-month futures was 101.5 percent as of 2:59 p.m., up from 59.7 percent on Jan. 12.

February $3.10 calls were the most active options in electronic trading. They were up 3.3 cents at 5.4 cents on volume of 1,514 contracts at 2:39 p.m.

Temperatures for New York City on Jan. 27 will drop to 10 degrees Fahrenheit (minus 12 Celsius), 17 degrees lower than average, according to AccuWeather Inc.’s website.

Pipeline Flows

Kinder Morgan Inc.’s Tennessee Gas Pipeline issued an operational flow order for the Northeast effective Jan. 27 in anticipation of stronger demand with “significantly colder weather” moving into the region next week, the company said in a website notice. Customers may be charged $5 per dekatherm on top of the daily regional spot price for taking excess deliveries off the system or for supplies that fall below scheduled quantities.

Spot prices on Tennessee’s 200 line deliveries into New England gained for the first time in five days, rising 32 percent to $8.6622 per million Btu on the Intercontinental Exchange.

Stalled Selloff

“With slightly higher confidence in the reappearance of below-normal temperatures in key consuming regions, the selloff appears to be stalling,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients. “Nevertheless, the extreme variability in the short-term weather forecasts hardly inspires confidence that heating demand will sufficiently pare inventories this season.”

U.S. stockpiles fell 583 billion cubic feet during the first three Energy Information Administration reports of this year, more than the five-year average drop of 511 for the period and the year-earlier decline of 550 billion. Stockpiles fell at half the normal pace last month because of milder weather.

A supply surplus in the consuming East region narrowed to 12.8 percent last week from 15.1 percent on Jan. 9, the first decline in six weeks.

Current forecasts indicate there are more weeks ahead of inventory declines topping 200 billion cubic feet, Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in an e-mailed report. “The large withdrawals still have the opportunity to create a premium for winter gas.”

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