U.S. Gas May Rally Further as Arctic Air to Wipe Out Supply Glut

U.S. natural gas bulls see futures that rallied to a two-year high climbing even further as an arctic blast helps wipe out a supply surplus that emerged in late 2014. 

Seven of 10 traders and analysts surveyed by Bloomberg News predicted higher prices while the rest were bearish. Gas has surged 42 percent since tumbling to a three-month low on Nov. 11 as forecasts turned colder after an unusually mild start to the heating season last month.

Weather projections show that a mass of arctic air will move farther south into the U.S. over the next 10 days, pushing temperatures to below freezing levels in the Midwest and parts of the Northeast, said Commodity Weather Group LLC. A surge in demand for the heating fuel will probably eliminate an inventory glut versus year-earlier levels, according to IAF Advisors.

“The weather was very bearish last winter and it started out very bearish this winter so that anything close to normal is really bullish,” said Kyle Cooper, director of research with IAF Advisors in Houston.“Those inventory comparisons have a pretty significant influence on prices. The year-on-year comparison is so bullish.”

Gas futures advanced 25.9 cents, or 7.5 percent, so far this week to 3.695 per million British thermal units on Thursday on the New York Mercantile Exchange, the highest settlement since Dec. 17, 2014. Prices are headed higher for the fourth straight week, which would be the longest streak of gains since the six weeks ended July 1.

Stockpiles of the heating and power-plant fuel totaled 3.953 trillion cubic feet on Dec. 2, 1.3 percent above year-earlier levels and 6.9 percent higher than the five-year average, U.S. Energy Information Administration data Thursday showed.

The cold air sweeping into the U.S. this week could wipe out the year-over-year surplus in the next EIA report and the glut to the five-year average may be eliminated by the end of December or early January, Cooper said.

“I think $4 is easily in the world and the market is honestly going to keep trending higher,” he said.

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