Natural gas extends gains as winter storm is expected to track across the US Northeast

Natural gas extended yesterdays gains as winter storm was expected to track across the US Northeast, leading to very high natural gas demand, as Americans crank up the heating. Meanwhile, the energy source was further supported after the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a second time, citing bad US weather conditions.

On the New York Mercantile Exchange, natural gas for delivery in March surged by 3.05% to trade at $5.055 per million British thermal units by 12:47 GMT. Prices hit a session high at $5.077 per mBtu, while day’s low was touched at $4.986 per mBtu. Yesterday, the contract gained 2.8%.

Prices soared 17% last month, the largest monthly advance since September 2012, after the energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

Cold short-term weather outlook

NatGasWeather.com reported on February 4th that a weather system coming out of the Plains will rapidly strengthen into a strong winter storm. A number of thunderstorms are expected along the cold front as it moves through the south-central US, some of which may be severe. Heavy snowfall of about 8-14 inches will impact areas in the Midwest and Northeast, locally quite a bit more in eastern Ohio, Pennsylvania and into the New England coast. Temperatures will be fairly mild over much of the eastern US prior to the approaching storm, but very cold Canadian air will blast through the Plains and into the rest of the central and eastern US Thursday and Friday. According to the website, some very high natural gas and heating demand for the rest of the week can be expected.

According to AccuWeather.com, temperatures in Cleveland on February 6th may bottom at -2 degrees Fahrenheit, 27 beneath average, while readings in Detroit may plunge to -1 degree Fahrenheit, below the average of 21. Temperatures in Chicago are expected to hit -5 degrees Fahrenheit, 25 below 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.

Extended forecast

NatGasWeather.com’s extended forecast for the week ended February 17th called for a very active weather pattern over the US until mid-February. Strong winter storms will track through the central and eastern US, with showers and thunderstorms over the south and areas of moderate to heavy snowfall over the north. Each system will lead to milder conditions into the Midwest and Northeast at times, but just briefly, not longer than a day or two, before cold air returns. According to the website, fairly high natural gas and heating demand for much of the second and probably part of the third week of February can be expected amid the cold weather conditions, although forecasts are still sloppy.

US gas inventories levels

The Energy Information Administration reported on Thursday that US natural gas inventories fell by 230 billion cubic feet in the seven days through January 24th, almost matching the median estimate of 15 analysts surveyed by Bloomberg for a 231-bcf withdrawal. The decline outstripped the five-year average drop of 162 bcf and last year’s 191-bcf decrease during the comparable week.

Total gas held in US underground storage hubs fell to 2.193 trillion cubic feet, 22.5% below last year’s amount of 2.830 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 16.6%, up from 13.2% a week earlier.

According to data by the Energy Department’s statistical arm, supplies have fallen 39% in the past 10 weeks.

At the same time, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a second time to 1.2 trillion cubic feet, from 1.39 trillion. The bank first lowered its forecast to 1.39 trillion from an earlier estimate of 1.61 trillion cubic feet.

According to another report by Mizuho Securities USA Inc., cited by Bloomberg, inventories may drop to 1.1 trillion cubic feet by March 31, which would be the lowest since 2004.