Natural Gas Jumps to $5 for First Time Since 2010 on Cold Blast

Jan 24, 2014 12:13 pm ET

Jan. 24 (Bloomberg) -- Natural gas futures surged to $5 for the first time in more than three years as U.S. demand soars and stockpiles tumble during a blast of arctic weather.

Gas has jumped 42 percent since the start of November. January is on track to be the coldest month of the century in the lower 48 states, according to Commodity Weather Group LLC. U.S. inventories of the fuel, used to heat 49 percent of U.S. households, have dropped at a record pace during the heating season, government data show.

“It hit the magical $5 number,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “There’s not enough supply and a lot of demand. It’s not just cold in one market, it’s brutally cold from Chicago heading East.”

Natural gas for February delivery rose 26.7 cents, or 5.6 percent, to $4.997 per million British thermal units at 11:30 a.m. on the New York Mercantile Exchange after jumping to $5.026, the highest intraday price since June 21, 2010. Trading volume was 78 percent above the 100-day average.

Prices are up 16 percent this week, heading for the biggest gain since the seven days ended Oct. 29, 2010. The futures have surged 13 percent this month, the top gainer in the Standard & Poor’s GSCI index of 24 commodities.

The premium of February to March futures increased 2.1 cents to 17.2 cents, the widest spread for the first two futures months since February 2004. March gas traded 45.1 cents above the April contract, compared with 28.9 cents yesterday.

Options Trading

February $5.15 calls were the most active options in electronic trading. They were 7.9 cents higher at 9 cents per million Btu on volume of 5,618 at 11:46 a.m. Calls accounted for 80 percent of trading volume.

Chicago was colder than the South Pole at the start of January as energy consumption rose and gas production sites reported disruptions because of freezing conditions.

A deficit of U.S. stockpiles versus the five-year average widened to a record 14.9 percent earlier this month. Spot gas for delivery in New York City and New England jumped to all-time highs this week amid surging demand and pipeline constraints.

Four of the top 10 coldest days of the 21st century in the contiguous U.S. states occurred this month, said Matt Rogers, president of Commodity Weather Group in Bethesda, Maryland.

Weather Warnings

Wind chill warnings and advisories stretch from Canada to the U.S. Gulf Coast and a winter storm warning has been issued in Houston, according to the National Weather Service. The service forecast snow, sleet, and rain over parts of Texas and the central Gulf Coast through early tomorrow.

“A wave of low pressure along the cold front currently settling into the southern states is expected to spread a rare coating of ice across southeast Texas and southwestern Louisiana,” the service said.

Temperatures in the Northeast will be in the low teens to single digits through this weekend, the service said. Readings may reach seasonal levels by Jan. 25 before dropping again.

The low in Dallas on Feb. 27 will fall to 18 degrees Fahrenheit (minus 8 Celsius), 20 below normal, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s low the same day will be minus 6 degrees with the high reaching minus 3 degrees.

Extremely cold weather means “the market is going to be less supplied at the end of the winter and that leaves the door open for more price gains,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

Record Decline

Gas inventories dropped by 1.386 trillion cubic feet to 2.423 trillion from Oct. 31 through Jan. 17, 50 percent more than the five-year average decline of 927 billion for the period, Jose Villar, an analyst with the U.S. Energy Information Administration, said in an e-mail yesterday. It’s the fastest pace of withdrawals on record, he said.

Goldman Sachs Group Inc. cut its end-of-March inventory projection to 1.388 trillion cubic feet from an earlier outlook of 1.605 trillion, Samantha Dart, a London-based analyst with the bank, said in a Jan. 20 note to clients. Lower stockpile levels with average weather in February and March mean gas prices may be closer to $4.40 to $4.50 this year compared with the bank’s current forecast of $4.25, she said.

“We’re a market right now that is focused pretty exclusively on the cold-weather shock,” said Brison Bickerton, head of strategy at Freepoint Commodities LLC in Stamford, Connecticut. “People have forgotten a little how powerful winter weather can be.”

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