Natural Gas Rebounds on Outlook for Record U.S. Stockpile Drop

Jan 16, 2014 10:09 am ET

Jan. 16 (Bloomberg) -- Natural gas jumped to the highest price in more than three weeks in New York on speculation that last week’s arctic blast prompted a record inventory decline.

Gas gained as much as 3.9 percent. The U.S. Energy Information Administration will probably say stockpiles shrank by 302 billion cubic feet in the week ended Jan. 10, based on the median of 25 analysts estimates compiled by Bloomberg. That would be the biggest drop in EIA data going back to 1994. MDA Weather Services predicted below-normal temperatures across the Eastern U.S. from Jan. 21 through Jan. 30.

“The market is expecting a pretty big number today and depending on who you talk to, we are going to get some cold weather coming back,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “At the moment, the fundamentals are pretty strong.”

Natural gas for February delivery jumped 14.4 cents, or 3.3 percent, to $4.469 per million British thermal units at 9:44 a.m. on the New York Mercantile Exchange after rising to $4.495, the highest intraday price since Dec. 23. Trading volume was 58 percent above the 100-day average. Prices are up 30 percent from a year ago, the biggest gainer Standard & Poor’s GSCI index of 24 commodities for the period.

The premium of February to March futures widened 0.6 cent to 5.3 cents. March gas traded 24.2 cents above the April contract, compared with 19.3 cents yesterday.

March $6 calls were the most active options in electronic trading. They were 2.7 cents higher at 6.9 cents per million Btu on volume of 450 at 9:46 a.m. Calls accounted for 72 percent of trading volume.

Estimate Range

The EIA, the statistical arm of the Energy Department, is scheduled to release its weekly gas inventory report at 10:30 a.m. in Washington. Analyst estimates ranged from declines of 278 billion to 321 billion cubic feet. Supplies had contracted by 156 billion the same time last year and the five-year norm for the period is 159 billion.

U.S. inventories totaled 2.817 trillion cubic feet in the week ended Jan. 3, falling to a record deficit of 10.1 percent below the five-year average based on government data going back to 2005. Supplies were 15.8 percent below year-earlier levels.

Gas is being withdrawn from storage facilities at the fastest pace in 13 years, Jose Villar, an analyst with the EIA, said in an e-mail yesterday. Supplies declined 992 billion cubic feet between Oct. 31 and Jan. 3, nearing the 1.079 trillion record in the same period for the winter of 2000-2001, he said. The average rate for the period is 621 billion.

Inventory Outlook

A return to colder weather signals the trend to big inventory drawdowns will continue, Saal said.

Unusually mild weather across most of the lower 48 states this week will give way to below-normal temperatures from the East Coast through the Midwest next week, said MDA in Gaithersburg, Maryland. A stronger push of cold air will sweep the Midwest and will also spread the lower readings through the Great Plains.

The low temperature in Minneapolis on Jan. 20 will plunge to minus 14 degrees Fahrenheit (minus 26 Celsius), 21 below average, said AccuWeather Inc. in State College, Pennsylvania. New York City’s low on Jan. 21 will drop to 15 degrees, 12 below average. About 49 percent of U.S. households use gas for heating, EIA data show.

--Editors: Bill Banker, Dan Stets