Natural gas futures hover around 6-1/2 highs as chilly weather forecasts continue

Natural gas traded close to Friday’s highs, unseen in more than six months, after weather forecasts continued to call for bitter cold temperatures and heavy snows across much of US, increasing demand for natural gas. Thursdays EIA report for the week ended November 29th showed a record November withdrawal in US gas inventories, which further supported the market.

On the New York Mercantile Exchange, having reached $4.199 per mBtu on Friday, the strongest level since May 29th, natural gas for delivery in December traded at $4.174 per million British thermal units at 10:36 GMT, up 1.46% on the day. Prices surged to a session high of $4.178, while day’s low stood at $4.155 per mBtu. The energy source added 4.2% last week, after gaining 8.3% in the previous two 5-day-periods.

NatGasWeather.com forecast a new winter storm to track across the Eastern US, bringing chilly rains into the Southeast and snow to New England. Over the next 7 to 10 days, numerous weather systems will track across the US with a wintry mix. Each system will tap into a fresh dose of cold Canadian air, keeping much of the northern US with below normal temperatures, leading to continued high natural gas demand. The latest blast of freezing cold temperatures will be pushing into the South, with bitter cold temperatures reaching Arizona and New Mexico. This cold blast is expected to move through Texas and the Southern Plains today and to reach the eastern US by mid-week.

Current temperatures are running 25-40 degrees Fahrenheit colder than normal across much of US and will remain in place until the Arctic grip begins to loosen across the South and West Tuesday through Thursday. The Midwest and Northeast, will experience below-normal temperatures until around December 16th, when a high pressure formation will temporarily increase temperatures into the central and eastern US.

NatGasWeather.com’s extended forecast for the week ending December 22nd called for a transition period for the US, as high pressure formation over the southern and central parts of the country will prevent any additional Arctic blasts to develop further than Southern Canada. Parts of the Midwest and Northeast will still experience chilly conditions, while the south will warm considerably. New cold blasts may probably return on US territory after December 20th..

According to AccuWeather.com, the low in Chicago on December 11th will be 3 degrees Fahrenheit, or 21 degrees beneath average. The low in Columbus on December 11th will be 12 degrees Fahrenheit, below the average of 28 degrees, while readings in New York will be 23 degrees Fahrenheit, 10 degrees beneath normal.

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 on Thursday a larger-than-projected withdrawal in US inventories in the week ended November 29th, signaling robust demand. Stockpiles fell by 162 billion cubic feet, a much larger decline than the projected withdrawal of 146 billion cubic feet, according to the median estimate of 21 analysts surveyed by Bloomberg. Last week’s drop was above the 5-year average decrease of 41 billion cubic.

Total gas held in U.S. underground storage hubs equaled 3.614 trillion cubic feet and were 5.2% below last year’s amount of 3.814 trillion, and 2.8% less than the five-year average.

Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York said after the EIA data release, cited by Bloomberg: “The records show that we’ve had only three other occasions in November where we’ve witnessed withdrawals of 100 billion cubic feet or greater, investors are going to be reluctant to short the gas market in the face of such constructive fundamentals.”

Early projections for next weeks storage data range between a draw of 75 billion cubic feet and 86 billion cubic feet, compared to a withdrawal of 8 billion cubic feet a year ago. The 5-year average change for the week is a 76 billion cubic feet decline.