Natural gas futures hit 6-month high on EIA report, East Coast storm

Natural gas hit the highest level since June as the Energy Information Administration reported that U.S. gas inventories fell in line with expectations last week, indicating robust demand during the winter heating season. Forecasts for below-normal-temperatures further supported the market.

On the New York Mercantile Exchange, natural gas futures for settlement in January traded at $3.883 per million British thermal units at 08:50 GMT, up 0.49% on the day, after reaching a 6-month high at $3.924 per million British thermal units at 3:15 GMT. Prices held in range between day’s low of 3.874 and session high at 3.924 per mBtu. The energy source was up 2.56% on weekly basis on Wednesday.

The Energy Information Administration reported on Wednesday, a day earlier due to the Thanksgiving holiday, a smaller-than-projected withdrawal in US inventories in the week ended November 22nd. Stockpiles fell by 13 billion cubic feet, which was a smaller decline than the maximum projected withdrawal of 20 billion cubic feet, but was still in line with median forecasts. Last weeks decrease was below the 5-year average decline of 15 billion cubic feet, but more than six times larger than the withdrawal of 2 billion cubic feet during the comparable period a year earlier.

Total gas held in U.S. underground storage hubs equaled 3.776 trillion cubic feet and were 2.6% below last years amount of 3.876 trillion. However, the surplus over the five-year average inventories widened to 0.5% from 0.4% a week earlier.

On Thursday, Tim Evans, an energy analyst at Citi Futures Perspective in New York, cited by Bloomberg, said: “While arguably near average and therefore neutral, we view the report as constructive, a larger draw than it might have been and no offset to the larger net withdrawals anticipated for the weeks ahead, as colder temperatures boost heating demand.”

According to NatGasWeather.com, a big east coast storm is already overtaking big territories across the Midwest and Northeast, bringing freezing cold temperatures and snow bands. A weaker, but still cold weather system will swing across the Midwest and New England on Sunday and will leave a few inches of snow. Early next week, a quieter period over the northern US is expected, before a bitter cold Arctic blast encompasses the southwestern regions of Canada around December 2nd. This blast will be formed into the Pacific Northwest and Great Basin, before it hits the plains and the south. Huge temperatures anomalies are expected, which will increase the demand for natural gas.

NatGasWeather.coms extended forecast for the week ending December 11th called for a significant Arctic outbreak to sweep across much of the US. The storm will be formed around the Pacific Northwest and northern Rockies, after which it is likely to reach as far as the plains and deep into the south. There is probability for this cold blast to lower temperatures across much of the northern and central US as much as 25-30 degrees below normal average.

According to AccuWeather.com, the low in New York on December 7th will be 27 degrees Fahrenheit, beneath the average of 35 degrees, while readings in Houston will be 37 degrees Fahrenheit, 11 degrees below usual. The low in Chicago on December 7th will be 15 degrees Fahrenheit, 10 degrees below normal.

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.

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