Natural Gas Futures Climb on Outlook for Record Supply Drop

Jan 10, 2014 3:30 pm ET

Jan. 10 (Bloomberg) -- Natural gas futures rebounded from a one-month low in New York on speculation that a government report next week will show a record U.S. inventory decline after an arctic blast boosted demand.

Gas climbed 1.2 percent after dropping below $4 yesterday for the first time since Dec. 5. The Jan. 16 report may show that supplies slid by 286 billion cubic feet in the week ended today, compared with the five-year average drop of 159 billion, according to Gelber & Associates in Houston. The largest drop on record is a decrease of 285 billion in the seven days ended Dec. 13, U.S. Energy Information Administration data show.

“The storage number next week is likely to trump the record,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Inventories are at the lowest level since 2008 for this time of year.”

Natural gas for February delivery rose 4.8 cents to settle at $4.053 per million British thermal units on the New York Mercantile Exchange after dropping to $3.953, the lowest intraday price since Dec. 5. Trading volume was 20 percent above the 100-day average at 2:54 p.m. Prices are up 27 percent from a year ago and declined 5.8 percent this week, the biggest weekly decrease since August.

The premium of February to March futures climbed 0.9 cent to 3.2 cents. March gas traded 11.6 cents above the April contract, compared with 8.5 cents yesterday.

March $7 calls were the most active options in electronic trading. They were unchanged at 0.7 cent per million Btu on volume of 2,046 at 3:23 p.m. Calls accounted for 67 percent of trading volume.

U.S. Supplies

Gas stockpiles totaled 2.817 trillion cubic feet as of Jan. 3, 10.1 percent below the five-year average and 15.8 percent less than last year’s supplies for the week, EIA data show.

The U.S. cut its forecast for gas inventories at the end of March, when they bottom out after the heating season, by 200 billion cubic feet to 1.5 trillion, Adam Sieminski, administrator of the EIA, said in an e-mailed statement Jan. 7. He attributed the revision to “a cold December and several large weekly withdrawals.” Stockpiles totaled 1.687 trillion as of March 29 last year.

“There is no question the cold weather has tremendously impacted gas storage,” Bill Herbert, an analyst at Simmons & Co. in Houston, said in a note to clients today. 

Great Lakes

MDA Weather Services in Gaithersburg, Maryland, said the weather may be colder than normal in the Great Lakes region and Southeast from Jan. 15 through Jan. 19.

The low in Detroit on Jan. 17 may be 7 degrees Fahrenheit (minus 14 Celsius), 13 less than average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Columbus, Ohio, may drop to 11 degrees 11 below normal.

About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm.

The number of rigs drilling for gas in the U.S. slumped by 15 to 357, the least since July, data from Baker Hughes Inc. in Houston showed today. The total is down 18 percent from a year ago.

--Editors: Bill Banker, Charlotte Porter