March 4 (Bloomberg) -- Natural gas futures jumped to a five-week high in New York on speculation that unusually cold weather in the East will spur demand for the heating fuel.
Gas rose 2.1 percent as MDA Weather Services predicted below-normal Eastern U.S. temperatures. The futures extended gains after a midday government forecast turned colder east of the Rocky Mountains through March 18. Frigid weather helped reduce a supply surplus to the five-year average in the week ended Feb. 22 for the first time since Jan. 4.
“We’ve got a really cold pattern in place at least through the middle of the month and that development is important compared to last week, when it looked like the trend was fading,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “We are going to have a strong finish to our heating season and for a market that has maintained a surplus for more than a year, this is welcome news.”
Natural gas for April delivery increased 7.3 cents to $3.529 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Jan. 23. Gas has climbed 5.3 percent this year. Trading volume was 5.3 percent below the 100-day average as of 2:37 p.m.
April $3.75 calls were the most active gas options in electronic trading. They advanced 0.6 cent to 3 cents per million Btu on volume of 736 contracts as of 2:34 p.m. Calls accounted for 54 percent of options volume.
The most significant change in the midday government models was that Eastern temperatures will be below normal in the 11- to 15-day outlook instead of seasonal or higher, said Jim Southard, a meteorologist with Frontier Weather Inc. in Tulsa, Oklahoma. There “is lower confidence than usual” in the latest midday run because of a wide spread between various models, he said.
The low temperature in Chicago on March 15 may drop to 18 degrees Fahrenheit (minus 8 Celsius), 12 lower than the usual reading, and New York City may be 10 below normal at 25 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
About 50 percent of U.S. households may use gas for heating, according to the Energy Information Administration, the statistical arm of the Energy Department.
Money managers raised net-long positions, or wagers on rising prices, on four U.S. gas contracts by 29,266 futures equivalents, or 21 percent, to 168,541 in the week ended Feb. 26, data from the Commodity Futures Trading Commission’s March 1 Commitments of Traders report show. It was the highest since the week ended Nov. 27, and the largest net-long position for the time of year since 2010.
“Natural gas has a chance to test higher, perhaps to the $3.70-$3.80 range, as long as cooler-than-normal temperatures persist, but will become vulnerable on the downside once spring arrives,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients today.
Gas inventories fell by 171 billion cubic feet to 2.229 trillion cubic feet in the week ended Feb. 22, above the five- year average drop of 118 billion for the period, the EIA reported last week.
A supply surplus to the historical norm fell to 16 percent from 17.7 percent the previous week, the first decline since Jan. 4, government data show. A deficit versus year-earlier levels widened to 12.1 percent from 9.2 percent, the most since August 2008. The previous winter was the fourth-warmest on U.S. record, which cut demand amid record production.
“The late withdrawals we’ve seen late in the season just mean we are going to have to put more gas in storage this summer,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “The next 30 days should be a little on the bearish side” as heating demand fades, he said.
U.S. gas production in December fell for the first time in four months, capping the slowest annual growth rate in three years, according to the monthly EIA-914 report on Feb. 28. Output slipped 0.7 percent to 82.57 billion cubic feet a day as operators in Louisiana, Texas and the Gulf of Mexico shut wells. For the year, production rose 0.6 percent from December 2011.
Improvements in technologies, including hydraulic fracturing, or fracking, and horizontal drilling boosted gas and oil production and helped the U.S. meet 84 percent of its energy needs in the first 11 months of the year, on pace to be the highest annual level since 1991, Energy Department data show.
--With assistance from Asjylyn Loder in New York. Editors: Bill Banker, Charlotte Porter