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Natural Gas Surges to January High on Colder Weather ForecastsFont size: A | A | A
1:03 PM ET 1/14/15 | Dow Jones
By Timothy Puko

Natural-gas futures surged to their highest point this January and are on pace for their biggest one-day gains in nearly a year as weather forecasts continue to show a cold winter is still on the way.

Gas has rallied for two days, on pace to post its strongest day of gains and back-to-back gains in 11 months. Futures are up nearly 14% since Monday's close.

The move demonstrates how powerful a force winter can still be at boosting the market, analysts and traders said. Record production, a mild December and predictions for a warmer-than-normal late January had led to a massive selloff, dropping prices by more than a third since November. But the late-January forecasts are reversing course, boosting expectations for gas demand to heat homes.

"This should get the market's attention that there's still some demand to be dealt with here," said John Kilduff, founding partner of Again Capital in New York. Late last week he said he was buying futures contracts, predicting that prices would soon surge above $3/mmBtu. "The market had just gotten ahead of itself with prices."

Natural gas for February delivery is up 24.4 cents, or 8.3%, at $3.187 a million British thermal units on the New York Mercantile Exchange. Gas is trading at its highest intraday point since Dec. 29 and above $3/mmBtu for the first time since Jan. 5.

A relaxed Pacific Jetstream is looking more likely for the last week of the month, increasing the chances for an arctic blast to hit the country, Weather Services International in Andover, Mass., said in its morning update. It isn't likely to be enough to set any record-low temperatures, though, said Phil Vida, lead forecaster at MDA Weather Services. In the major markets for gas heating demand, Chicago looks like it will have the coldest spell, about 5-degrees-Fahernheit-below normal, according to MDA's forecast.

The swing does change the overall look for January, making the whole month colder than average, meteorologists said. It adds to a cold start to the month that sent demand for natural gas to 129 billion cubic feet a day, its fifth highest since 2005, according to the Energy Information Administration. About half of all U.S. homes use gas for heat, making winter the common peak for prices.

That demand is likely to show up in this week's EIA storage update. Storage levels probably fell by 231 bcf, 22% more than average, in the week that ended Friday, according to the average forecast of 18 analysts and traders surveyed by The Wall Street Journal. The EIA is scheduled to release its storage data for the week on Thursday at 10:30 a.m. EST.

That type of demand, combined with the weather, is forcing bears out of the market, traders said. Bets from money managers this month had been largely in favor of falling prices. Many of those investors now have to scramble to buy in and close out those bets as the weather and stronger demand start to turn the market against them.

"You've got to take the money off the table," John Woods, president of JJ Woods Associates and a Nymex trader who had also been betting on rising prices in the past week. "Everything indicates a move upward, so they're just jumping ... beforehand. Those who didn't will probably lose out."

Longer-term forecasts also suggest this won't be the end of severe cold. Both Commodity Weather Group and WeatherBELL Analytics released seasonal updates Wednesday reaffirming their predictions for a cold end to winter.

Commodity Weather Group says "February cold could rival 2014 levels at times," referring to the polar front that set record-lows nationwide last year and sent gas prices up to nearly $6.50/mmBtu. WeatherBELL calls unseasonably warm weather coming next week "an isle in a sea of cold." It predicts the Midwest and South will average temperatures 2- to 6-degrees-Fahernheit below normal from February through April.

Write to Timothy Puko at [e-mail]

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