Natural gas futures climbed to the highest price in more than a week on forecasts of unusually cold weather that will stoke demand for the heating fuel.
Gas rose 2.5 percent as forecasters including Commodity Weather Group LLC said below-normal temperatures will sweep into parts of the Midwest over the next 11 to 15 days. The decline in U.S. inventories in the first 13 weeks of this heating season was 34 percent higher than the same period a year ago, when the U.S. was in the middle of the fourth-warmest winter on record.
“There is some cold in the forecast for the Midwest and that, obviously, with Chicago being one of the largest space- heating demand markets for gas, is supportive,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “As of February, the bulls are running out of winter, or weather spikes, to spur demand.”
Natural gas for March delivery gained 8.4 cents to settle at $3.399 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Jan. 25. Trading volume was 26 percent below the 100-day average at 2:44 p.m. The futures have gained 36 percent from a year ago.
March $3.70 calls were the most active gas options in electronic trading. They were 1 cent higher at 2.2 cents on volume of 886 contracts as of 3:33 p.m. Calls accounted for 51 percent of options volume.
“The higher bias is due to extended weather forecasts that are showing a cold trend, after the warm-up that is about to occur over the weekend into next week,” Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today. “As the warm-up comes into focus, look for prices to react lower.”
Gas extended gains after a midday update to government models showed colder weather for the Midwest and the East in the 11- to 15-day period, said Jim Southard, a meteorologist with Frontier Weather Inc. in Tulsa, Oklahoma. The latest model runs show temperatures in the regions may be 15 to 20 degrees below normal on the coldest days, “but it’s a long way out so it’s not by any means a certainty yet,” he said.
The low in Chicago on Feb. 15 may be 10 degrees Fahrenheit (minus 13 Celsius) and Dallas may be 29 degrees, 12 below the usual reading for both cities, according to AccuWeather Inc. in State College, Pennsylvania. About 50 percent of U.S. households use gas for heating.
PJM Interconnection LLC, which manages the 13-state Eastern U.S. power grid from New Jersey into Illinois, expects peak hourly demand on Feb. 10 to drop to 93,556 megawatts for the hour ending at 7 p.m., the least for that hour since Jan. 19, before climbing to 102,736 megawatts the next day, data from the grid operator show.
Gas inventories probably fell by 130 billion cubic feet last week, according to the median of four analyst estimates compiled by Bloomberg. The five-year average decline for the period is 165 billion, according to the Energy Information Administration.
Stockpiles totaled 2.802 trillion cubic feet in the week ended Jan. 25, down 6.7 percent from a year earlier, the EIA, the Energy Department’s statistical arm, said last week. The year-over-year deficit was the widest since July 2011. A surplus to the five-year average climbed to 12.2 percent from 10.7 percent for the week ended Jan. 4.
U.S. marketed gas output in will increase 0.9 percent to 69.84 billion cubic feet a day in 2013, according to the EIA. Production will set a record for the sixth straight year, led by gains at shale reserves.
Technologies such as hydraulic fracturing, or fracking, and horizontal drilling, which can bisect more pockets of gas than vertical wells, have made it more economical to extract the fuel from rock formations such as the Marcellus in the Northeast.
Some of the gains in shale gas output may be offset by a drop in drilling elsewhere in the U.S. The gas-rig count fell by 6 last week to 428, the least since Dec. 14, Baker Hughes Inc. said Feb. 1. The number was down 43 percent from a year earlier.
The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 10 months of last year, on pace to be the highest annual level since 1991, government data show.
To contact the reporter on this story: Naureen S. Malik in New York at Nmalik28@bloomberg.net;
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