Natural gas futures hit 3-1/2-week high on upbeat inventories data

Natural gas surged to the highest since the end of October after the Energy Information Administration reported a larger-than-expected withdrawal in U.S. inventories in the week ended November 15. Outlook for colder-than-usual weather through the beginning of December also weighed on prices.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.732 per million British thermal units at 15:55 GMT, up 1.58% on the day. Prices surged to a session high of $3.742, the strongest level since October 28, while days low stood at $3.662 per mBtu. The energy source added 3.2% on Wednesday, the most in more than a month, and extended its weekly advance to 2.3% following Thursdays gains.

Futures climbed to multi-week highs after the Energy Information Administration reported a larger-than-expected decline in U.S. inventorie last week. Natural gas stockpiles fell by 45 billion cubic feet in the week ended November 15, compared to projections for a 38 billion withdrawal according to the median estimate of 21 analysts surveyed by Bloomberg. Last weeks decrease was above the five-year average decline of 2 billion cubic feet and a 36 billion withdrawal during the comparable period a year earlier.

Total gas held in U.S. underground storage hubs now equaled 3.789 trillion cubic feet and were 2.3% above last years amount of 3.878 trillion. The surplus over the five-year average inventories narrowed to 0.4% from 1.5% a week earlier.

Inventories at the East Region declined by 31 billion cubic feet to 1.953 trillion and were 5.7% below the average of 2.071 trillion. Stockpiles in the Produing Region fell by 13 billion cubic feet to 1.284, 8.1% above the five-year average of 1.188 trillion.

The power-station fuel was also well supported as weather forecasting models continued to point to below-average temperatures across most of the U.S. in the next five to seven days. According to NatGasWeather.com, a strong cold front will drop through the Intermountain West and into the Plains today, coupled with rain and snow falling over as far south as Kansas. A second wave of cold air is expected to sweep across the Midwest and Northeast on Friday and Saturday, bringing readings to 20-25 degrees Fahrenheit below usual. Temperatures are expected to briefly moderate early next week, NatGasWeather said, before falling again after a new shot of cold air drops into the Midwest in the middle of the week and brings snow.

Readings in the northern parts of the country are expected to remain below-average between November 28 and December 6, the agency said, but how cold and how far down into the central U.S. will the cold front move is yet uncertain.

MDA Weather Services in Gaithersburg, Maryland, also predicted that the eastern half of the U.S. will experience colder-than-normal weather through December 4, indicating increased consumption of the energy source.

According to AccuWeather.com, the low in New York on November 29 will be 26 degrees Fahrenheit, 12 below usual, while temperatures in Chicago may bottom at 18 degrees, 10 beneath the average. In Boston, readings are expected to fall to 25 degrees Fahrenheit on December 3, 8 below usual, and then dip to 21 degrees three days later, 11 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.