Natural Gas Futures Gain as Cold Blast to Stoke Heating Demand

Natural gas futures posted the biggest one-day gain in two weeks in New York as forecasts turned colder for the eastern U.S., signaling increased demand for heating fuels.

The Great Lakes to the Northeast will have frigid weather through Feb. 19, said MDA Weather Services. Chicago’s high on Feb. 12 will be 11 degrees Fahrenheit (minus 12 Celsius), 25 below normal, AccuWeather Inc. said on its website.

“The cold is providing a little support,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “Increased seasonal demand will help eat up the excess supply we have.”

Natural gas for March delivery rose 8 cents, or 3.1 percent, to settle at $2.677 per million British thermal units on the New York Mercantile Exchange, the biggest increase since Jan. 27. Volume for all futures traded was 38 percent above the 100-day average at 2:34 p.m. Prices have dropped 31 percent since the start of the heating-demand season in November.

May $1.80 puts were the most active options in electronic trading. They fell 0.1 cent to 1.2 cents on volume of 1,000 contracts at 2:24 p.m.

“A blast of arctic air will deliver the coldest weather so far this winter in the Northeast” this week, with highs topping out in the teens and single digits, Brian Lada, a meteorologist for AccuWeather, said in a report Tuesday.

Spot gas prices at Algonquin City Gates in New England jumped 30 percent to $16.46 per million Btu on the Intercontinental Exchange, the highest since March 14. Transco Zone 6 for New York rose 78 percent to $13.79, a one-week high.

Lingering Cold

Colder-than-normal weather will linger in the mid-Atlantic states through the Ohio Valley Feb. 20 through Feb. 30, said MDA in Gaithersburg, Maryland. About 49 percent of U.S. households use gas for heating, led by the Midwest and Northeast.

Current forecasts indicate that February heating degree days, a proxy for weather driven energy demand, will total 854.6 nationwide, up 4.9 percent from an estimate made last month, Commodity Weather Group LLC said in an e-mailed report. Last February’s heating degree day total was 880.8.

The blast of frigid air over the next two weeks means “we will see a decent pull from storage and that holds of some of the selling pressure,” McGillian said.

Gas stockpiles probably fell 152 billion cubic last week, based on the median of four analyst estimates compiled by Bloomberg. Estimates ranged from declines of 149 billion to 180 billion. The five-year average draw for the week is 178 billion. Supplies fell 234 billion the same week last year. The U.S. Energy Information Administration’s weekly stockpile report is scheduled for release on Feb. 12.

March Supplies

Inventories have fallen by 1.143 trillion cubic feet since October to 2.428 trillion on Jan. 30, EIA data show. Supplies were 24 percent higher than at the end of January 2014.

The EIA said stockpiles will bottom out at 1.669 trillion cubic feet at the end of the heating season in March, according to the monthly Short-Term Energy Outlook, released Tuesday. That will leave supplies 43 billion cubic feet higher than the five-year average for the time of year, versus last months’ projection for a surplus of 9 billion.

“Natural gas prices are expected to stay low through this winter and early spring as ample inventories and continued growth in domestic gas production put downward pressure on prices,” EIA Administrator Adam Sieminski said in an e-mailed statement.

The government cut its 2015 gas price forecast to $3.05 per million Btu from $3.44 as production grows, driven by gains in the Marcellus shale formation. Low prices will boost gas demand from power plants by 5.5 percent from 2014 levels.

“Once we get a crack in the weather, the market is going to resume its slide,” McGillian said.

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