Natural gas futures hover near 6-month highs on freezing cold weather outlook

Natural gas traded overall steadily on Monday, having hit fresh 6-months highs on Friday as cold weather is expected across most of the densely-populated US areas, boosting demand for the power-station fuel for heating purposes. Last weeks EIA inventories report further supported the market as US gas inventories fell in line with expectations in the week ended November 22, showing robust demand.

On the New York Mercantile Exchange, natural gas futures for settlement in January traded at $3.934 per million British thermal units at 12:59 GMT, down 0.51% on the day, after reaching a 6-month high at $3.959 per million British thermal units on Friday. Prices held in range between day’s low of $3.899 and session high at $3.943 per mBtu. The energy source settled 4.5% higher last week.

According to NatGasWeather.com, a bitter cold Arctic outbreak is swinging across the Western US and into central Plains with blasts of moderate to heavy snowfall. The cold weather formation is encompassing the Pacific Northwest and Great Basin today and Tuesday, after which it will make it deep into the Plains and South on Wednesday. Strong winds, heavy snow, and the coldest temperatures of the season will lead to very high natural gas and heating demand in the impacted regions. However, the Eastern US will gradually warm, with temperatures near or above normal, temporarily easing natural gas demand over the highest-consuming states until late this week, when the colder air finally reaches the area.

NatGasWeather.com’s extended forecast for the week ending December 16th called for much colder weather than normal across most of the US densely-populated areas. The cold weather is expected to be in place by December 9th and to remain until the end of the week. There is likelihood of few winter storms over the northern and central US, with areas of accumulating snows and strong winds. The cold blast will probably lower temperatures by 15-20 degrees Fahrenheit below average.

According to AccuWeather.com, the low in Chicago on December 10th will be 12 degrees Fahrenheit, beneath the average of 24 degrees, while readings in Boston will be 22 degrees Fahrenheit, 8 degrees below average. The low in New York on December 10th will be 27 degrees Fahrenheit or 7 degrees beneath 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.

The Energy Information Administration reported last Wednesday a smaller-than-projected withdrawal in US inventories in the week ended November 22nd. Stockpiles fell by 13 billion cubic feet, which was a smaller decline than the maximum projected withdrawal of 20 billion cubic feet, but was still in line with median forecasts. Last week’s decrease was below the 5-year average decline of 15 billion cubic feet, but more than six times larger than the withdrawal of 2 billion cubic feet during the comparable period a year earlier.

Total gas held in U.S. underground storage hubs equaled 3.776 trillion cubic feet and were 2.6% below last year’s amount of 3.876 trillion. However, the surplus over the five-year average inventories widened to 0.5% from 0.4% a week earlier.

Tim Evans, an energy analyst at Citi Futures Perspective in New York, cited by Bloomberg, said on Thursday: “While arguably near average and therefore neutral, we view the report as constructive, a larger draw than it might have been and no offset to the larger net withdrawals anticipated for the weeks ahead, as colder temperatures boost heating demand.”