Natural-gas futures capped the biggest weekly gain in almost two years as January weather forecasts took a turn toward the cold side and a U.S. government report showed a bigger-than-expected supply decline.
Gas prices jumped 15 percent this week after forecasts signaled that spring-like December weather in the Northeast and Midwest won’t extend into January. Stockpiles of the heating and power-plant fuel dropped by 32 billion cubic feet last week to 3.814 trillion, compared with the five-year average decline of 121 billion for the period, according to the Energy Information Administration. Analyst expected a decline of 27 billion while a survey of Bloomberg users predicted a withdrawal of 26 billion.
“It’s a couple bigger than I thought,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “That said, it’s not even in the same planet as the five-year average, but that’s the way the weather has been. You are getting a little bit of a short-covering rally.”
Gas futures for January delivery rose 4.6 cents, or 2.3 percent, to $2.029 per million British thermal units on the New York Mercantile Exchange, settling above $2 for the first time in two weeks. The market will be closed Friday.
Inventories are hovering at record highs for this time of the year in EIA data going back to 1994. A supply surplus to the five-year average widened to 12.1 percent from 9.1 percent the previous week, the biggest such glut since March 2013, the EIA said. Stockpiles were 17.2 percent above year-earlier levels compared with 16.4 percent in the last report.
The pace of withdrawals will accelerate in the next three reports, jumping to as much as 157 billion in the week ending Jan. 8, based on colder weather in the new year, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in note to clients late Wednesday.
The Northeast and Midwest will see seasonal temperatures Jan. 3 through Jan. 7 following an unusually warm December, said Commodity Weather Group LLC. Manhattan’s high on Thursday set a record when it passed 63 Fahrenheit (17 Celsius) and may reach 71 degrees, 31 above normal, before sliding to 37 on Jan. 6, AccuWeather Inc. said.
“The market is continuing higher with some weather forecasts calling for below-normal temperatures in early January,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management. “While the temperatures are not extreme, it’s a significant shift from the well-above-normal temperatures currently encompassing the country.”
As forecasts for January turned cooler, the number of heating degree days, a measure of energy demand based on population, rose to 883 from 870 in Monday’s outlook, “and there’s a chance we could increase a bit more early next week,” Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in an e-mail.
Last week, concern mounted that mild weather could extend farther into winter. The warmest December since 1950, based on heating degree days, helped drive prices to a 16-year low. The number of HDDs is on track to end the month at 627, “way below” last year’s level of 766 and the 10-year average of 850, Rogers said.