Natural gas futures gain on cold weather outlook, inventories data

Natural gas rebounded after falling by nearly 3% on Friday as weather forecasting models called for below-average temperatures in most of the densely-populated US areas, boosting demand for the power-station fuel as Americans crank up the heating. US stockpiles falling to the lowest since August in the seven days to December 20 also supported the market.

On the New York Mercantile Exchange, natural gas for delivery in February rose by 2.21% to $4.465 per million British thermal units by 12:46 GMT. Prices shifted in a daily range between $4.471 and $4.407 per mBtu. The energy source lost nearly 3% on Friday and settled the week 1.9% lower. Prices however have risen by 32% this year, set for the best performance since 2005 and second straight annual advance.

The power-plant fuel rebounded from last weeks losses as weather forecasts pointed to colder-than-usual weather in most of the US, boosting demand prospects. According to NatGasWeather.com, a strong cold front will continue to sweep through the central US with below-normal temperatures invading much of the central and eastern US, which will remain well into the New Year.

Daily highs are expected to hover near 10 degrees Fahrenheit for the Midwest and portions of the Northeast over the coming days, while freezing temperatures are also expected deep into the South and Southeast. This will lead to high heating and natural gas demand for the week ahead, but doesnt look quite cold enough over the South for significant freeze issues, the website said.

Another reinforcing shot of very cold Canadian air is expected between January 2nd and 6th, which will impact these same regions with temperature anomalies of 15-25 degrees Fahrenheit colder than normal. There is no widespread snowfall expected, due to the lack of excessive moisture, but some localized bands of light snow will be seen over the Midwest.

During the following week, there is a high chance for a significant change in the weather pattern, mainly for a warm up in the central and eastern US, but the scenarios remain uncertain. Market players will be waiting for more certain forecasts as we get closer to January 7th-8th, but scenarios for both very cold and very warm weather are possible, NatGasWeather.com said.

According to AccuWeather.com, temperatures in New York may bottom on January 3rd at 8 degrees Fahrenheit, 20 below the average, while the low in Chicago is expected to be 17 degrees, 2 beneath the usual. In Boston, readings are expected to plunge to as much as -3 degrees Fahrenheit, compared to the average of 23 degrees, while in Houston the low will be 38 degrees, 7 below normal.

Prices also continued to draw support after the Energy Information Administration reported on Friday that US natural gas inventories fell for a sixth consecutive week in the seven days to December 20, reaching the lowest level since August. Supplies slid by 177 billion cubic feet, matching the median estimate of analysts surveyed by Bloomberg and outstripping the five-year average decline of 125 bcf and last years 74 bcf drop during the comparable period.

Total natural gas held in underground US storage hubs amounted to 3.071 trillion cubic feet, 16.1% below last years level during the same week and 9.2% below the five-year average stockpiles.

Early withdrawal projections for this weeks data due on Friday range between 110 bcf and 150 bcf, in line with the five-year average decline of 121 bcf and last years 126 bcf during the comparable period.