Natural gas futures hit fresh 7-1/2-month high ahead of EIA’s inventories report, chilly weather outlook

Natural gas rose to the highest since May 1st ahead of a government report that may show a larger-than-average withdrawal in US inventories last week. Long-term weather forecasts continued to call for freezing cold temperatures across most of the densely -populated US areas.

On the New York Mercantile Exchange, natural gas for delivery in January surged by 1.67% to trade at $4.410 per mBtu at 12:55 GMT, the highest level since May 1st. Prices touched day lows at $4.335 per million British thermal units. The energy source marked a fifth consecutive day of gains, adding 6.9% for this week until now. The contract added 4.2% last week, after gaining 8.3% in the previous two 5-day-periods.

NatGasWeather.com forecast a high pressure formation to expand into the central US, warming temperatures across much of the US today and on Friday. The only regions that will still experience below-normal temperatures this week and probably next week are the Great Lakes and Northeast. A strong winter storm will blast the Northeast this weekend, if two weather systems phase perfectly. Next week, the weather pattern will enter a transition period, with much warmer conditions pushing from west to east across the US, temporarily easing natural gas demand. Another major Arctic outbreak will cross the Northern Rockies around the 20th and will then push deep into the central and eastern US, with probability to significantly impact even the South. The cold blast will cause huge temperature anomalies, leading to massive surge in natural gas and heating demand. The forecast called for reinforcing shots of cold air, which will keep much of the nation in bitter cold temperatures through the Christmas Holiday and may be even to New Year.

NatGasWeather.com’s extended forecast for the week ending December 24th called for a transition period for the US, as a high pressure formation over the southern and central parts of the country will provide warmer temperatures. Parts of the Midwest and Northeast will still experience chilly conditions, while the south will warm considerably from 16th-19th. The next Arctic blast will probably push into the Northern Rockies around the 20th and will then rapidly push into the Plains and Midwest. The cold outbreak will bring temperature anomalies running well above 25-35 degrees Fahrenheit below normal. There is potential for the extreme cold to push deep into Texas and even the Southeast. There will also be areas of snowfall as the cold front blasts through the country. Huge natural gas draws are expected as much of the nation freezes under snow cover, low sun angle, and brutally cold temperatures.

According to AccuWeather.com, the low in Indianapolis on December 18th will be 6 degrees Fahrenheit, or 18 degrees beneath average. Readings in Detroit on December 18th will bottom at 13 degrees Fahrenheit, below the average of 24 degrees, while the low in Chicago will be 5 degrees Fahrenheit, 17 degrees 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. 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 Thursday, the Energy Information Administration reported a larger-than-projected withdrawal in US inventories in the week ended November 29th, signaling robust demand. Stockpiles fell by 162 billion cubic feet, a much larger decline than the projected withdrawal of 146 billion cubic feet, according to the median estimate of 21 analysts surveyed by Bloomberg. Last week’s drop was above the 5-year average decrease of 41 billion cubic.

Total gas held in U.S. underground storage hubs equaled 3.614 trillion cubic feet and were 5.2% below last year’s amount of 3.814 trillion, and 2.8% less than the five-year average.

Market players awaited the release of EIA’s latest US inventories report, due later today. Early withdrawal estimates for this week’s storage data range between a draw of 75 billion cubic feet and 86 billion cubic feet, compared to a withdrawal of 8 billion cubic feet a year ago. The 5-year average change for the week is a 76 billion cubic feet decline.

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