Natural gas futures advance to 4-week high on cold weather outlook, inventories decline

Natural gas jumped to the highest since the end of October as weather forecasting models continued to point to below-average temperatures through most of the U.S., stoking demand for the power-station fuel. A larger-than-expected decline in U.S. inventories last week continued to support the market.

On the New York Mercantile Exchange, natural gas for delivery in December traded at $3.775 per million British thermal units at 18:11 GMT, up 1.96% on the day. Prices surged to a session high of $3.778, the strongest level since October 28, while days low stood at $3.682 per mBtu. The energy source added 1.2% on Thursday and extended its weekly decline to nearly 3.5% on Friday.

Natural gas continued its upward momentum as weather forecasting models kept pointing to near-term below-average temperatures in most of the U.S. densely-populated areas through November 28. According to NatGasWeather.com, bitter cold continues to invade the central and the eastern parts of the country with readings falling to as much as 25-30 degrees Fahrenheit beneath the average. The agency also reported that a second stronger wave of Arctic cold air will sweep across the Midwest and Northeast today and on Saturday, pushing temperatures to 20-25 degrees Fahrenheit below normal. Freezing temperatures were expected in some of the southeastern parts of the country. Snow is projected to fall in portions of the Great Plains and Midwest. Demand for natural gas during the Thanksgiving holiday is anticipated to be very high.

NatGasWeather also predicted that high heating demand will continue through December 7 in the northern U.S. as recurring shots of cold air will keep temperatures in the Midwest and Northeast below the usual.

Acccording to AccuWeather.com, the low in New York on November 28 will be 24 degrees Fahrenheit, down from the average of 38 degrees, while readings in Boston will bottom at 26 degrees Fahrenheit, 8 below usual. In Houston, temperatures will fall to a much as 42 degrees, 8 beneath the 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.

Natural gas was also well supported after the Energy Information Administration reported a larger-than-projeted withdrawal in U.S. inventories in the week ended November 15, signaling robust demand as we enter the winter heating season. Stockpiles fell by 45 billion cubic feet compared to projections for a 38 billion withdrawal according to the median estimate of 21 analysts surveyed by Bloomberg. Last week’s 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 equaled 3.789 trillion cubic feet and were 2.3% above last year’s 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.

Eric Bickel, a natural gas analyst at Schneider Electric in Louisville, Kentucky, commented for Bloomberg: “We are starting our trek into the withdrawal season. The market is going to start tightening as we see the cold front come across. We will definitely see a withdrawal next week that will probably support the market through the remainder of November.”

According to a weekly Bloomberg survey of 11 analysts, natural gas will extend gains through November 29. Nine of the participans polled, or 82%, wagered that futures will rise next week, while the remaining two predicted a decline in prices.