Natural Gas Jumps to 2-Year High as Cold Follows Winter Storm

Jan 22, 2014 3:22 pm ET

Jan. 22 (Bloomberg) -- Natural gas futures surged in New York to the highest price in more than two years as frigid weather stoked demand for the heating fuel.

Gas gained 5.8 percent, the most since Sept. 11, 2012, as temperatures plummeted following a winter storm yesterday that brought record snowfall for the date to New York’s Central Park. The low in the city today may be 6 degrees Fahrenheit (minus 14 Celsius), 21 below normal, according to AccuWeather Inc. in State College, Pennsylvania. MDA Weather Services predicted colder-than-usual readings in the eastern half of the U.S. through Jan. 31.

“We haven’t seen sustained cold weather like this in a long while,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “This is absolutely weather-driven. The market is showing some pretty good strength.”

Natural gas for February delivery rose 25.8 cents to $4.689 per million British thermal units on the New York Mercantile Exchange, the highest settlement since June 10, 2011. Trading volume was 62 percent above the 100-day average at 2:42 p.m. The futures are up 32 percent from a year ago.

The premium of February to March futures widened 6.6 cents to 13.9 cents. March gas traded 28.2 cents above the April contract, up from 17.9 cents yesterday and the widest differential since Dec. 23.

Options Trading

February $4.70 calls were the most active options in electronic trading. They were 9 cents higher at 11.7 cents per million Btu on volume of 1,734 at 2:58 p.m. Calls accounted for 64 percent of trading volume.

Eleven inches of snow fell in Central Park yesterday, according to the National Weather Service. Snowfall also set daily records in Washington and Philadelphia.

The low in Boston today may be 6 degrees Fahrenheit, 16 below normal, AccuWeather data show. About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said the U.S. may finish the month with a natural-gas-weighted heating-degree days value of 1,050.8, beating the previous record of 1,038.1 set in January 2004. The value is calculated by subtracting the daily average temperature from a base of 65 degrees. The higher the number, the more energy is required to heat homes and businesses.

Hub Records

Spot gas for next-day delivery to consumers in Boston rose to a record. Prices at Algonquin City Gates, which includes Boston and other New England deliveries, gained 37 percent to $78.6393 per million Btu on the IntercontinentalExchange, the highest settlement in exchange data going back to 2001.

Gas on Williams Co.’s Transco Zone 6 hub for New York City dropped 32 percent to $81.9877 after surging sevenfold to a record $120.6976 per million Btu yesterday.

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 cubic feet as of March 29 last year.

Stockpile Report

EIA data scheduled for release tomorrow may show gas inventories fell 104 billion cubic feet in the week ended Jan. 17, according to the median of 16 analyst estimates compiled by Bloomberg. The five-year average decline for the period is 181 billion. Supplies dropped by 168 billion in the same week last year.

Stockpiles totaled 2.53 trillion cubic feet in the seven days ended Jan. 10, 14.9 percent below the five-year average and 20.7 percent below year-earlier inventories.

Sterne Agee & Leach Inc. raised its 2014 U.S. natural gas price forecast to $4.25 per thousand cubic feet ($4.15 per million Btu) from $4, Tim Rezvan, an analyst at the brokerage in New York, said in a note to clients today. Rezvan cited increasing shipments via pipeline to Mexico, the potential for LNG exports and a “Hail Mary” withdrawal from gas storage amid cold weather.

--With assistance from Brian K. Sullivan in Boston. Editors: Bill Banker, Charlotte Porter