Natural Gas Futures Gain on Outlook for Frigid January Weather

Jan 15, 2014 12:17 pm ET

Jan. 15 (Bloomberg) -- Natural gas climbed for a fourth day in New York amid forecasts for colder-than-normal weather that would deplete stockpiles of the heating fuel.

Gas gained as much as 1.4 percent as WSI Corp. in Andover, Massachusetts, said temperatures would be below average in the eastern U.S. from Jan. 20 through Jan. 29 after milder readings this week. Government data tomorrow may show that gas inventories dropped by 300 billion cubic feet last week, exceeding the record withdrawal of 285 billion in the week ended Dec. 13, according to the median of 18 analyst estimates compiled by Bloomberg.

“The reversal to colder weather and the call for a record storage withdrawal have really rekindled the gas rally,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The bulls are in the driver’s seat again.”

Natural gas for February delivery rose 4.9 cents, or 1.1 percent, to $4.418 per million British thermal units at 11:57 a.m. on the New York Mercantile Exchange. Trading volume was 15 percent above the 100-day average. Prices are up 28 percent from a year ago.

The premium of February to March futures narrowed 0.3 cent to 5.1 cents. March gas traded 23.8 cents above the April contract, compared with 20.1 cents yesterday.

February $4.50 calls were the most active options in electronic trading. They were 1.6 cents higher at 10.6 cents per million Btu on volume of 1,511 at 12:03 p.m. Calls accounted for 68 percent of trading volume.

Below Average

The low in Cincinnati on Jan. 23 may be 13 degrees Fahrenheit (minus 11 Celsius), 9 less than average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Boston may fall to 11 degrees, 11 below normal.

About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration.

The five-year average storage drop for the seven days ended Jan. 10 is 159 billion, according to the EIA, the Energy Department’s statistical arm.

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, EIA data show. Inventories were at the lowest level since 2008 for the time of year.

Ending Stocks

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 as of March 29 last year.

“Given the steep decline in inventories, the weather and its effect on demand will remain the essential data point for the foreseeable future,” Mike Fitzpatrick, editor of The Energy OverView newsletter in New York, wrote today.

The number of rigs drilling for gas in the U.S. slumped by 15 to 357, the least since July, Baker Hughes Inc. in Houston said Jan. 10. The total was down 18 percent from a year earlier.

--Editors: Bill Banker, David Marino