WSJ article on NG rally -
Natural-gas prices posted on Monday their largest one-day percentage gain since January, as signs of cold weather and stronger heating demand crept into forecasts, chasing out many investors who had bet on falling prices.
Prices for the front-month January contract settled up 14.4 cents, or 8.1%, at $1.911 a million British thermal units on the New York Mercantile Exchange.
Gas prices had been down 25% to start this month and, since August, money managers have had nearly two bearish positions on gas for every one bullish position. A market leaning that heavily in one direction is often vulnerable to snapping back the other way if traders find a reason to close out positions and lock in profits on successful bets.
Monday-morning weather updates helped do that for gas, several people said. After weeks of unseasonably warm weather nearly canceling the beginning of heating season, forecasts are starting to show temperatures closer to normal in the East and below normal in the Rockies to end December.
Commodity Weather Group LLC in Bethesda, Md., released a new seasonal forecast Monday showing below-normal temperatures covering the far south from Las Vegas to Jacksonville, Fla., in January. It added 13 heating-degree days, a metric that tallies heating-related demand, for the month.
That is only a 1.5% increase, but traders have been expecting one of the warmest winters in recent memory. Power prices are rising in the East and mid-Atlantic states, and traders are questioning whether January will be as warm and soft for heating demand as December, said Scott Shelton, broker at ICAP PLC. That is enough to have bearish traders close out positions to cut their risk of prices surging as winter demand rises, he and others said.
“You don’t want to be the guy that’s left holding the bag,” said John Woods, president of JJ Woods Associates and a Nymex trader.
But many don’t expect this to last. Commodity Weather Group’s forecast is still for the second-warmest winter of the century and producers have shown little sign they are willing to make major cuts to production.
“We’re a long way away from making any significant change,” said Tim Pickering, president of Auspice Capital Advisors Ltd., which manages $300 million and is holding bearish positions on gas. “You are going to get those times when you get these little bursts of move up. In the grand scheme of things, they look like dots.”
Write to Timothy Puko at tim.puko@wsj.com
