Photographer: Luke Sharrett/Bloomberg

U.S. Gas Gurus Are Divided Between Warm Spell Bears and $4 Bulls

Updated on
  • Moderate weather could change as calendar flips to February
  • Temperature flipflops have put certainty on prices on hold

U.S. natural gas soothsayers are at a stalemate. Bulls say more arctic air may vault futures above $4 for the first time since 2014. Bears see the February contract expiration and a warm spell dragging them lower.

Welcome to the suddenly uncertain world of fuel trading.

Eight of 17 traders and analysts surveyed by Bloomberg News predicted prices that rallied to a 13-month high this week will drop. Seven are bullish, and the final two are straddling the line, seeing little movement. The lack of certainty comes after futures finally pushed above a narrow trading range that has frustrated traders for months, boosted by cold weather that led to a record inventory decline.

“Unfortunately it just really comes down more and more to that temperature profile and how influential Mother Nature really is,” said Kyle Cooper, director of research at IAF Advisors in Houston.

Bears are betting that mild weather this week and next will slow stockpile draws, especially with production aiming at new records ahead. But models also show that frigid weather is set to return late next week. Speculators on both sides of the divide have been burned this winter by temperature flipflops tied to a La Nina weather pattern.  

One sign of traders holding out is that the more-actively traded March futures haven’t kept pace with the rally and will drag down the front-month price when the February contract expires on Jan. 29. That price drop caused by a contract roll is being viewed as a bearish sign by some survey respondents.

If the cold shows up, that could also add upside momentum to close that technical trading gap.

“Clearly we have more production, but we also have a lot more demand," Cooper said by telephone. “If we actually get some cold weather in early to mid-February like the models are showing, the storage levels are going to be really, really low.”

February futures fell 6.2 cents to settle at $3.447 on the New York Mercantile Exchange while March contracts rose 1.9 cents to $3.099.

The U.S. is currently locked into a warm weather pattern and the next time temperatures will be below-average nationwide will be Feb. 2, said Matt Rogers, president of Commodity Weather Group LLC.

Gas inventories fell by 288 billion cubic feet last week to 2.296 trillion, widening a deficit versus the five-year average to 18 percent, U.S. Energy Information Administration data Thursday showed. That storage draw matched the previous record set in Jan. 2014 and was only exceeded by the new record draw set earlier this month of 359 billion.

If that forecast pans out and March favors cooler readings, storage levels may drop to less than 1 trillion cubic feet and gas prices may surge to $4, the first time for both since 2014, according to Cooper, who is bullish right now. “It will take cold temperatures,” he said.

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