Natural gas rebounded from yesterdays three-week low as a winter storm tracked across the northern and southern parts of the US, boosting demand for the power station fuel.
On the New York Mercantile Exchange (NYMEX), natural gas for delivery in March added 2.31% to trade at $4.685 per million British thermal units by 13:03 GMT. Prices hit a session high at $4.647 per mBtu, while day’s low was touched at $4.572 per mBtu. Yesterday, the contract hit $4.564 per mBtu, the weakest level since January 22, while on February 5, the contract surged to a 4-year high.
Prices have soared 9% so far in 2014, after the energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.
CME Group Inc. announced last week, that effective from February 6th, the initial margin for next-month natural gas futures, traded on 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 as volatility more than doubled from 31.64% last year to 80.2% in 2014.
Short-term weather outlook
NatGasWeather.com reported on February 11th that a fairly strong storm can be expected to track out of the Southeast along the eastern US coastline. Many highly-populated states in the northern part of the country will experience heavy snow and strong winds tonight.
The storm forced the governor of Georgia to declare a state of emergency for 45 counties, while public schools in Atlanta were shut.
The latest cold blast has brought single digit and beneath zero overnight lows to the northern US, leading to strong natural gas and heating demand. Many highly-populated states in the northern part of the country will experience heavy snow and strong winds tonight.
Another weather system will track out of the Plains and into the Southeast today, causing wintry mix of precipitation. Moreover, another round of light to moderate snowfall can be expected over the Midwest and Northeast during next weekend. The storm will probably be fairly strong and could lead to heavy snowfall over the highest-consumption states of the northern US. The website predicts high natural gas and heating demand through the period ended February 15.
Extended forecast
NatGasWeather.com’s extended forecast for the period ended February 24th called for a very active weather pattern to continue through the third week of February. A fresh storm may develop over the northern US on February 17-18th, accumulating snowfall and lowering temperatures to below-normal. A period of milder weather conditions is expected as a big ridge pushes through the central and eastern US around 19th-22nd February.
According to the website, this will ease natural gas demand over the highest-consumption states of the north, as daytime highs may finally reach 50s. A reinforcing shot of cold weather may return over the northern US after February 22nd.
US gas inventories levels
The Energy Information Administration said in its weekly storage report that US natural gas inventories fell by 262 billion cubic feet in the seven days through January 31st, less than the median forecast of 273 billion cubic feet, by 19 analysts in a Bloomberg survey. However, the decline outstripped the five-year average drop of 151 bcf and last year’s 129-bcf decrease during the comparable week.
Total gas held in US underground storage hubs fell to 1.923 trillion cubic feet, 28.8% below last year’s amount of 2.701 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 22.4%, up from 16.6% a week earlier.
According to data by the Energy Department’s statistical arm, supplies have fallen 50% in the past 12 weeks through January 31st.
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, down from 1.39 trillion. The bank first trimmed its forecast to 1.39 trillion from an earlier estimate of 1.61 trillion cubic feet.
A separate report by Mizuho Securities USA Inc., cited by Bloomberg, showed inventories may drop to 1.1 trillion cubic feet by March 31, which would be the lowest since 2004.
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