Natural gas extends rally on forecast for huge withdrawals, weather supports

Natural gas advanced for a third day on Tuesday amid expectation a government report may show a record-high decline in US gas supplies, following last week chilly weather conditions. The energy source continued to be supported by weather forecasting models, which called for freezing temperatures over many densely populated US areas, boosting demand for the power station fuel as Americans crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in February rose by 1.35% to trade at $4.332 per million British thermal units by 13:07 GMT. Prices hit a session high at $4.333 per mBtu, while day’s low was touched at $4.288 per mBtu. The February contract surged by 5.4% to close at $4.297 per mBtu yesterday, marking the largest daily increase since April 29. Last week, the energy source declined 5.7%, after losing 0.4% in the previous 5-day period. However, prices settled last year 26% higher, the best performance since 2005 and second straight annual advance.

US gas inventories levels

“Gas inventories probably fell by 303 billion cubic feet in the week ended January 10”, reported Citi Futures Perspective, cited by Bloomberg. This will surpass the largest-ever withdrawal of 285 billion, registered in the week ended December 13th. The Energy Information Association will release its weekly US gas inventories report on January 16th.

Total gas held in underground storage hubs equaled 2.817 trillion cubic feet as of January 3rd, 15.8% below last year’s 3.345 trillion stored. The deficit to the five-year average widened to a record 10.1% from 8.9% in the preceding week.

Short-term weather forecast

NatGasWeather.com reported on January 14th that a return to cool conditions for much of the central and eastern US is underway as a strong cold front begins to sweep through the northern Plains and Midwest and into the eastern US overnight. Additional reinforcing blasts of cold air will push deep into the central and southeastern US over the next 10 days. Each of the outbreaks has the potential to bring several inches of snow, especially over the Midwest and Northeast. The initial cold blast today and Wednesday will be followed by a second Thursday into Friday and yet another Saturday into Sunday. According to the website the numerous blasts of freezing, wintry conditions will continue to support high natural gas and energy demand.

Continuing long-term cold weather outlook

NatGasWeather.com’s extended forecast for the week ended January 28th, called for low pressure over the eastern half of the country and high pressure over the western US. The cold weather will maintain moderate to high natural gas and energy demand over much of the central and eastern US. Every few days, reinforcing shots of cold air may sweep through the Midwest and parts of the Plains into the East. Some of these might push deep into the Southeast, with temperatures likely to be freezing all the way to the Gulf of Mexico coastline.

According to AccuWeather.com, on January 21st readings in Cleveland may bottom at 11 degrees Fahrenheit, 12 below average, while the low in Chicago may hit 5 degrees, beneath the average of 18 degrees. Temperatures in Indianapolis are expected to bottom at 8 degrees Fahrenheit, 12 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.