Jan. 16 (Bloomberg) -- Natural gas futures advanced to a three-week high in New York on speculation that another push of cold air will stoke demand for the heating fuel.
Gas rose 1.3 percent as MDA Weather Services said unusually mild weather this week will give way to below-normal temperatures from Jan. 21 through Jan. 30. Prices have jumped 8.1 percent from a six-week low on Jan. 10 leading up to a government report today that showed a record stockpile drop of 287 billion cubic feet after frigid weather last week.
“We do see much-below normal temperatures affecting the key consuming regions,” said David Bouckhout, senior commodity strategist at Toronto-Dominion Bank in Calgary. “Prices moved sharply lower last week but we’ve completely reversed those losses and that’s a reflection of both expectations of a strong draw for storage this week as well as the colder weather forecast. This is purely a short-term, event-driven rally.’
Natural gas for February delivery rose 5.7 cents to settle at $4.382 per million British thermal units on the New York Mercantile Exchange after rising to $4.495, the highest intraday price since Dec. 23. Volume was more than double the 100-day average at 2:42 p.m. Gas has climbed 28 percent in the past year, the biggest gainer in the Standard & Poor’s GSCI index of 24 commodities.
The premium of February to March futures widened 1.1 cents to 5.8 cents. March gas traded 21.2 cents above the April contract, compared with 19.3 cents yesterday.
February $5 calls were the most active options in electronic trading. They were 0.5 cent higher at 1.6 cents per million Btu on volume of 2,163 at 2:45 p.m. Calls accounted for 65 percent of trading volume.
A surge of cold air will push across the Eastern half of the U.S. from Jan. 20 through Jan. 29, replacing this week’s mild weather, according to MDA Weather Services in Gaithersburg, Maryland.
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, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm.
Gas inventories in the lower 48 states fell 287 billion cubic feet in the week ended Jan. 10 to 2.53 trillion, the EIA said today. It was the biggest decline in weekly data going back to 1994, topping the previous record of 285 billion in the seven days ended Dec. 13. Analyst estimates compiled by Bloomberg showed an expected storage withdrawal of 302 billion.
Last week’s decline was larger than the five-year average drop of 159 billion cubic feet for the period, and the year- earlier decrease of 156 billion.
A deficit to five-year average supply levels widened to a record 14.9 percent from 10.1 percent the previous week. Inventories were 20.7 percent below year-earlier levels, compared with 15.8 percent in last week’s report.
The U.S. reduced its end-of-March supply forecast by 200 billion cubic feet to 1.5 trillion following cold December weather and several large inventory withdrawals, Adam Sieminski, administrator of the EIA, said in an e-mailed Statement on Jan. 7. Inventories typically bottom out in March, the end of the U.S. peak heating-demand season.
‘‘There is plenty of winter left to create strong enough demand to impact supplies,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. Stockpiles may end the season below 1.3 trillion cubic feet, he said.
Gas price increases will be limited by rising U.S. production and reduced demand, as some power generators switch back to lower-cost coal, the EIA said in its Jan. 7 Short-Term Energy Outlook.
Electricity producers will use 2.6 percent less gas this year than in 2013 to average 21.73 billion cubic feet a day, the report showed. Marketed gas production will climb 2.1 percent from last year to average a record 71.66 billion cubic feet day, driven by new wells coming online at the Marcellus shale deposit in the Northeast.
The EIA expects daily Marcellus output to reach 14.2 billion cubic feet in February, up 44 percent from a year earlier, according to the Jan. 13 Drilling Productivity Report.
The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.
--Editors: Bill Banker, Richard Stubbe