Natural gas futures hit 6-month high on cold weather forecasts

Natural gas rose to the highest in 6 months as weather forecasting models continued to point to below-average temperatures through most of the U.S., supporting demand for the power-station fuel. A larger-than-expected decline in U.S. inventories last week continued to underpin the market.

On the New York Mercantile Exchange, natural gas for delivery in January traded at $3.893 per million British thermal units at 4:15 GMT. This was the strongest level in almost six months, while day’s low stood at $3.821 per mBtu.

Natural gas continued its upward trend after forecasting models predicted temperatures to remain below average in the near-term in most of the US states through December 1st. According to NatGasWeather.com the Midwest will be hit by a reinforcing shot of cold air on Wednesday. In the northern US, even with the gradual warm-up, temperatures will remain bellow normal until the rest of the week. There will be areas of rain, snow, and ice over the east coast. High natural gas demand is expected for the busy Thanksgiving day. An even colder weather pattern is possible for much of the US in early December with freezing temperatures possible to southern Texas.

The weather outlook for the period 1st-8th December also supported prices. According to NatGasWeather.com, there is a chance of a great Arctic outbreak. The models are remaining silent as to from where exactly the deep cold weather will move into the US. There is a likelihood that the cold weather will affect wide US areas with freezing temperatures, reaching as far south as Texas. If confirmed, it will cause temperature anomalies across much of the northern and central US of 25-35 degrees below normal. The website predicted that high natural gas usage will continue well into mid December, supporting prices.

According to AccuWeather.com, the low in New York on November 30 will be 32 degrees Fahrenheit, down from the average of 37 degrees, while readings in Boston will bottom at 32 degrees, 2 beneath the average.

When cold weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of U.S. electricity generation. Above-average readings in the winter season have the opposite effect. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

Natural gas was also well supported after the Energy Information Administration reported a larger-than-projected withdrawal in U.S. inventories in the week ended November 15, signaling robust demand as we enter the winter heating season. Stockpiles fell by 45 billion cubic feet compared to projections for a 38 billion withdrawal according to the median estimate of 21 analysts surveyed by Bloomberg. Last week’s decrease was above the five-year average decline of 2 billion cubic feet and a 36 billion withdrawal during the comparable period a year earlier.

Total gas held in U.S. underground storage hubs equaled 3.789 trillion cubic feet and were 2.3% above last year’s amount of 3.878 trillion. The surplus over the five-year average inventories narrowed to 0.4% from 1.5% a week earlier.

Inventories at the East Region declined by 31 billion cubic feet to 1.953 trillion and were 5.7% below the average of 2.071 trillion. Stockpiles in the Produing Region fell by 13 billion cubic feet to 1.284, 8.1% above the five-year average of 1.188 trillion.