Natural gas retreats from one-week high, margin requirements increase

Natural gas pulled back from the strongest level in almost a week as the increased price volatility forced the CME Group Inc. to raise margins for trading futures in New York to the highest level since October 2009. However, the energy source remained supported by weather forecasting models that called for chilly weather conditions across many densely-populated US areas.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in March fell by 0.41% to trade at $5.353 per million British thermal units by 09:33 GMT. Prices hit a session high at $5.372 per mBtu, while day’s low was touched at $5.256 per mBtu. Yesterday, the contract gained almost 5%, the largest daily advance since January 29th, when the energy source added nearly 12%.

Prices soared 17% last month, the largest monthly advance since September 2012, after the energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

The CME Group Inc. announced on Tuesday, that effective from February 6th, the initial margin for natural gas futures for delivery in March, traded on the NYMEX, will increase almost 10% to $ 5 500 for speculators from $5 005. This will be the highest margin requirement in more than 4 years, and will be almost double the initial margin at the beginning of this year, which was $2 530.

According to Standard & Poor’s GSCI gauge of 24 commodities, gas futures are the most volatile commodity this year. Natural gas futures volatility more than doubled from 31.64% last year to 80.2% in 2014.

Short-term weather outlook

NatGasWeather.com reported on February 5th that a massive winter storm will continue to hammer the US with heavy rain, strong thunderstorms and heavy snow. The Ohio valley region and much of the Northeast will be covered by more than 8 inches of snow, accompanied by strong brisk winds and blizzard conditions. The highest gas-consumption states around the Southern Great Lakes through the Northeast coast will see impressive snowfall amounts well over a foot. According to the website, for the rest of the week some very high natural gas and heating demand can be expected.

Extended forecast

NatGasWeather.com’s extended forecast for the period ended February 18th called for a very active weather pattern over the US until mid-February. Strong winter storms will track through the central and eastern US, with showers and thunderstorms over the south and areas of moderate to heavy snowfall over the north. Each system will lead to milder conditions into the Midwest and Northeast at times, but just briefly, not longer than a day or two, before cold air returns. According to the website, fairly high natural gas and heating demand for much of the second and probably part of the third week of February can be expected amid the cold weather conditions, although forecasts are still sloppy.

US gas inventories levels

The Energy Information Administration may report on February 6th that natural gas inventories declined by 267 billion cubic feet in the previous week, according to the median experts forecasts in a Bloomberg survey of 10 analysts. The five-year average decrease for the comparable period was 151 billion.

The government agency reported on Thursday that US natural gas inventories fell by 230 billion cubic feet in the seven days through January 24th, almost matching the median estimate of 15 analysts surveyed by Bloomberg for a 231-bcf withdrawal. The decline outstripped the five-year average drop of 162 bcf and last year’s 191-bcf decrease during the comparable week.

Total gas held in US underground storage hubs fell to 2.193 trillion cubic feet, 22.5% below last year’s amount of 2.830 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 16.6%, up from 13.2% a week earlier.

According to data by the Energy Department’s statistical arm, supplies have fallen 39% in the past 10 weeks.

At the same time, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a second time to 1.2 trillion cubic feet, from 1.39 trillion. The bank first lowered its forecast to 1.39 trillion from an earlier estimate of 1.61 trillion cubic feet.

According to another report by Mizuho Securities USA Inc., cited by Bloomberg, inventories may drop to 1.1 trillion cubic feet by March 31, which would be the lowest since 2004.