Natural gas sets for largest weekly advance in 16 months on Arctic cold

Natural gas advanced a fourth day and was poised for the biggest weekly advance since September 2012, as short-term weather forecasting models called for freezing cold weather conditions over most of the densely populated US areas. Chilly temperatures boost natural gas demand, as Americans crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in February rose by 3.05% to hit a session high at $4.875 per million British thermal units by 09:41 GMT. Prices hit a session high at $4.895 per mBtu, while day’s low was touched at $4.824 per mBtu. Yesterday prices touched $4.944 per mBtu, the strongest level since June 9th 2011.

The energy source has headed for 13.5% gain this week, which is the largest advance since September 2012. Prices settled last year 26% higher, the best performance since 2005 and second straight annual advance.

Freezing cold short-term weather outlook

NatGasWeather.com reported on January 24th that the first of three Arctic blasts is already fading. According to the website, high to very high natural gas and energy demand is expected across the country, as very cold temperatures pushed as far as into the southern US. Much of the central and eastern US will continue to experience below-normal temperatures over the next few days, with areas of snowfall over the Midwest and Northeast.

An even frigid Arctic air mass is expected to come in two waves, with the first one bringing snow to the Midwest and Northeast on Saturday and Sunday, followed by another round Monday and Tuesday. The two waves will bring brutally cold air, leading to below zero temperatures over much of the northern US. Over the Mid-Atlantic and portions of Southeast, lows will also reach only single digits.

A hard freeze may occur over the Gulf coast, which can lead to some minor production issues. However, by Wednesday, the extreme cold will probably retreat back to Canada.

According to AccuWeather.com, temperatures in Cleveland on January 27th may bottom at -7 degrees Fahrenheit, 31 beneath average, while the low in New York may hit 9 degrees, below the average of 27 degrees. Temperatures in Chicago are expected to hit -14 degrees Fahrenheit, 32 below normal, while readings in Detroit may bottom at -6, 26 degrees below 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.

Long-term weather forecast

The long-term weather outlook pointed to a period of relatively calm conditions across much of the US. NatGasWeather.com’s forecast for the week ended February 6th called for a big pattern change to take place during the first week of February. Once the Arctic year air retreats around 1st February as a strong west to east jet stream sets up across the US.

The weather pattern will be more springlike, with high pressure formation warming temperatures to 60s and 70s over the southern US and the Mid-Atlantic at times. However, cold conditions can be expected over the northern Plains, Midwest and Northeast, but not in the recent extreme fashion.

The period of milder conditions will probably continue through the second week of February.

EIAs weekly US gas storage report

The Energy Information Administration (EIA)reported on Thursday that US gas supplies fell by 107 billion cubic feet in the week ended January 17th, which was higher than the median analyst forecast for a net withdrawal of 103 bcf. Last week, US gas supplies dropped by 287 billion cubic feet, the largest decline on record.

Total gas held in underground storage hubs equaled 2.423 trillion cubic feet as of January 17th, 19.8% below last year’s 3.021 trillion stored. The deficit to the five-year average narrowed to 13.2% from previous weeks record 14.9%.

Inventories in the East Region fell by 67 bcf to 1.187 trillion and were 17.6% below the five-year average of 1.440 trillion cubic feet. The West Region received a net draw of 15 bcf to 349 bcf, 10.5% below the average. Stockpiles in the Producing Region slid by 25 billion cubic feet and reached 887 bcf, 7.8% beneath the five-year average of 962 billion cubic feet.

According to data by the Energy Department’s statistical arm, supplies have fallen 37% in the past 10 weeks.