Natural gas futures extend gains after EIA storage data

Natural gas surged to session highs on Thursday after the Energy Information Administration reported an above-average inventory decline last week that also exceeded analysts expectations, while weather forecasts called for a cold end to January over the Midwest and Northeast.

Natural gas for delivery in February gained $0.10 by 15:54 GMT to trade at $3.333 per million British thermal units, having risen to a session high of $3.352 shortly after the release of the report. The energy source surged 9.85% yesterday to $3.233, its biggest daily gain since February 19th. Prices are up over 13% so far this week.

The Energy Information Administration reported that US natural gas inventories declined by 236 billion cubic feet in the week ended January 9th, compared to analysts projections for a decrease in the range of 220-230 bcf. The drop exceeded the five-year average draw of 190 bcf, while inventories slid by 268 bcf a year earlier.

Total gas held in US storage hubs amounted to 2.853 trillion cubic feet, expanding a deficit to the five-year average inventories of 2.966 trillion to 3.8% from 2.1% during the previous week, or 113 bcf. The surplus to the year-ago stockpiles level of 2.571 trillion cubic feet expanded to 11.0%.

The East Region saw supplies decline by 127 billion cubic feet to 1.468 trillion, standing 3.6% below the five-year average, while inventories in the West Region declined by 28 bcf to 400 bcf and were 3.1% below the average. The Producing Region saw stockpiles slide by 81 bcf to 985 bcf, bringing them to 4.4% below the five-year average levels.

Next week’s EIA report is also projected to show an above-average weekly decline as the recent Arctic blasts are factored in but the following one should be much thinner due to milder conditions late this week into next.

Weather

The power-station fuel surged yesterday and continued to draw support as weather models showed colder-than-usual weather over the northern US and Midwest starting late next week. According to NatGasWeather.com, natural gas demand in the US through January 21st will be moderate compared to normal, but high for the far North, with a slightly cooler weather trend for the following seven days.

Cold Canadian air will continue to affect the Great Lakes and Interior Northeast today and on Sunday into Monday, but the rest of the US will remain quite mild. The southern parts of the country will see readings range between 50 and 70 degrees Fahrenheit, including in California.

Weather systems tracking across the US around January 21st-22nd will tap colder Canadian air, which will bring temperatures across the central and eastern US to seasonal and below-seasonal readings. More importantly, Arctic air will be lurking right over the Canadian border, bearing the potential to be tapped by northern US weather systems, which would bring brief blasts of much colder temperatures.

Bloomberg reported, citing Jim Southard, a meteorologist with Frontier Weather, that readings over the Midwest and Northeast will fall as much as 20 degrees below usual late next week.

“The weather data has been all over the place on how much colder air will arrive for the last week of January…” NatGasWeather.com said in a report. “But based on the strength of Wednesday’s move it appears the markets have been convinced enough colder temperatures are coming for the last week of January.”

However, it still remains uncertain how the pattern will play out. Meanwhile, the remaining portions of the US are expected to see mostly seasonal weather, keeping in check extensive price gains.