Natural gas futures near 6-month highs, forecasts of chilly weather continue

Natural gas remained near 6-month highs, ahead of a government report that may show a larger-than-average withdrawal in US inventories last week.

On the New York Mercantile Exchange, natural gas futures for settlement in January traded at $3.964 per million British thermal units at 13:50 GMT, down 0.31% on the day, having reached a 6-month high at $4.016 per million British thermal units yesterday. Prices swung between day highs and lows of $3.996 and $3.955 per million British thermal units, respectively. The energy source ended the Tuesday session mostly unchanged after a string of nine consecutive daily advances, but trimmed its weekly gain to 0.2% on Wednesday. Prices settled 4.5% higher last week after surging 6.4% in the preceding two five-day periods.

NatGasWeather.com predicted a bitter cold blast to swing through the Plains, leaving areas of moderate to heavy snow and strong wind. The impacted region will experience strong winds, heavy snow and the coldest temperatures for the season, which will increase demand for natural gas. Bitter cold temperatures, close to 0 degrees Fahrenheit are also expected during the next few days in the Northern Plains, after which the Arctic weather formation will make its way deep into the South. However, the Eastern US will gradually warm, with temperatures near or above normal, temporarily easing natural gas demand over the highest-consuming states until late this week, when the colder air finally reaches the area. Reinforcing cold air and additional snowfall across northern US early next week will put the nation in an ice box through mid December.

NatGasWeather.com’s extended forecast for the week ending December 16th called for much colder than normal weather across most of the US densely-populated areas. There is likelihood of few winter storms over the northern and central US, with areas of accumulating snow and ice. The website imparted that a higher-than-normal natural gas draws are expected during the week, with many of the highest consumption states experiencing cold conditions and temperature anomalies greater than 15-20°F.

According to AccuWeather.com, the low in Chicago on December 12th will be 28 degrees Fahrenheit, beneath the average of 33 degrees, while readings in Boston will be 16 degrees Fahrenheit, 14 degrees below average. The low in New York on December 12th will be 16 degrees Fahrenheit or 8 degrees beneath 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.

Last week, an EIA report showed that 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. However, the surplus over the five-year average inventories widened to 0.5% from 0.4% a week earlier.

Market players awaited the release of EIAs latest US inventories report, due on Thursday. Early withdrawal estimates for this week’s storage data range from 109 billion cubic feet to 148 billion cubic feet, compared to a drop of 62 billion cubic feet during the same week a year earlier. If confirmed, this would sharply exceed the five-year average decline of 41 billion cubic feet, providing further support to the market.

Stephen Schork, the president of the Schork Group Inc., an energy consultant in Villanova, Pennsylvania, said, cited by Bloomberg, “Heating demand is moderate this week but is expected to surge next week with temperatures forecast to plunge, the market is looking for a massive draw of gas from inventories”.