Natural Gas Futures Soar on Forecasts for Record Stockpile Drop

Jan 13, 2014 3:47 pm ET

Jan. 13 (Bloomberg) -- Natural gas futures surged the most in 16 months on speculation that government data will show a record decline in U.S. stockpiles of the heating fuel as cold weather boosts demand.

Gas gained 5.5 percent, the largest increase since Sept. 11, 2012. An Energy Information Administration report Jan. 16 may show that supplies fell 303 billion cubic feet last week, surpassing the biggest-ever drop of 285 billion on Dec. 13, according to Citi Futures. MDA Weather Services predicted below- normal temperatures in the eastern U.S. from Jan. 18 to Jan. 27.

“Traders are focusing on the fact that we’re probably going to see a record storage withdrawal,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “The market’s not ready to give up on winter yet.”

Natural gas for February delivery rose 22.1 cents to settle at $4.274 per million British thermal units on the New York Mercantile Exchange. Trading volume was 40 percent above the 100-day average at 2:50 p.m. Prices are up 28 percent from a year ago.

The premium of February to March futures advanced 1.8 cents to 5 cents. March gas traded 16.8 cents above the April contract, compared with 11.6 cents on Jan. 10.

February $4 puts were the most active options in electronic trading. They were 6.3 cents lower at 2.6 cents per million Btu on volume of 1,335 at 3:02 p.m. Puts accounted for 34 percent of trading volume.

Inventory Deficit

Gas stockpiles totaled 2.817 trillion cubic feet on Jan. 3, 10.1 percent below the five-year average and 15.8 percent less than last year’s supplies for the week, according to the EIA, the Energy Department’s statistical arm. The five-year average drop for the seven days ended Jan. 10 is 159 billion.

Traders may be “reluctant to hold shorts ahead of Thursday’s DOE storage report,” Tim Evans, an energy analyst at Citi Futures in New York, said in a note to clients today.

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.” Supplies totaled 1.687 trillion on March 29 last year.

Jan. 7 was the coldest day of the 21st century in the contiguous U.S. states, based on a measure of heating demand, according to Commodity Weather Group LLC in Bethesda, Maryland.

Colder Weather

The low in New York on Jan. 19 may be 18 degrees Fahrenheit (minus 8 Celsius), 9 less than average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Cleveland may fall to 15 degrees, 8 below normal.

About 49 percent of U.S. households use gas for heating, EIA data show.

Net-long wagers on four U.S. natural gas contracts declined by 7,008 futures equivalents, or 1.8 percent, to 382,634 last week, according to a Commodity Futures Trading Commission report released Jan. 10.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

--Editors: Bill Banker, Charlotte Porter