Natural gas futures hit fresh 6-month high on cold outbreak forecasts

Natural gas rose to the highest since the beginning of June as weather forecasting models continued to call for below-average temperatures across most of the U.S. densely-populated areas, stoking demand for the power-station fuel as American households crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in January traded at $3.923 per million British thermal units at 14:53 GMT. Prices surged to a 6-month high of $3.930 per mBtu, while days low stood at $3.874. The energy source jumped by 0.9% on Wednesday, a sixth consecutive daily advance, and extended its weekly gain to over 3.6% on Thursday.

Futures continued their upward trend amid weather forecasts showing below average-temperatures across most of the U.S. NatGasWeather.com reported that the Midwest and Northeast will see colder-than-usual weather during the weekend with a weak but cold system swinging to the east and reaching New England on Sunday. Snowfall is to be expected. On December 2, a bitter cold Arctic blast should drop from southwestern Canada through the Pacific Northwest and Great Basin and then make its way into the Plains and southern states. Huge temperature anomalies and inventories withdrawals are to be expected, especially if the blast of cold air sweeps into the eastern U.S., which is very possible, the agency said.

NatGasWeather.com also reported that there is potential for the cold outbreak to travel deep into the South, bringing freezing temperatures as far as Texas and the Mexican border between December 4 and December 11. If the forecasting model confirms, readings in most of the north and central U.S. will drop to as much as 25-35 degrees Fahrenheit below normal.

According to AccuWeather.com, temperatures in New York on December 9 may bottom at 25 degrees Fahrenheit, 9 degrees below average, while the low in Chicago may be 12 degrees, 12 beneath the usual. Readings in Cleveland are expected to fall to as much as 18 degrees Fahrenheit, below the average of 32, while the low in Houston will be 36 degrees, 12 beneath 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. 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.

Also fanning positive sentiment, the Energy Information Administration reported on Wednesday that U.S. natural gas inventories fell in line with expectations in the seven days to November 22. 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 week’s 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 year’s amount of 3.876 trillion. The surplus over the five-year average inventories widened to 0.5% from 0.4% a week earlier.

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