Natural Gas Advances as Supplies Decline More Than Forecast Share Business
Dec. 17 (Bloomberg) -- Natural gas futures soared in New York to their highest price in almost a year after a government report showed that U.S. stockpiles fell more than analysts estimated as lower temperatures boosted demand.
Inventories declined 207 billion cubic feet in the week ended Dec. 11 to 3.566 trillion cubic feet, the Energy Department said in a report today. Analysts forecast a decline of 178 billion, based on the median of 23 estimates. The five- year average change for the week is a decline of 127 billion cubic feet.
“We’re getting a bit better demand and maybe supply just isn’t as gangbusters as some people are thinking,” said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary, who predicted a decline of 200 billion cubic feet.
Natural gas for January delivery rose 30.6 cents, or 5.6 percent, to $5.768 per million British thermal units at 2:55 p.m. on the New York Mercantile Exchange, the highest settlement price since Jan. 7. Gas has gained 2.6 percent this year.
U.S. heating demand was 23 percent higher than normal in the week ended Dec. 12, according to the National Oceanic and Atmospheric Administration.
A decline in drilling in the U.S. is forecast to cut output in the coming year, according to the Energy Department. Production in the lower 48 states fell 2.2 percent in September from August as the number of rigs working dipped by more than half in the past year.
Shrinking Surplus
The withdrawal reduced the surplus compared with the five- year average to 433 billion cubic feet from 513 billion the previous week, according to the department.
“The biggest bearish factor against gas in the past year and a half has been the surplus,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut.
A recovery in the U.S. economy is also helping to spur demand for gas, said King.
The rebound may extend into the first half as two reports today showed a strengthening economy. The Conference Board’s index of leading indicators rose for the eighth month in a row. Manufacturing in the Philadelphia region grew in December at the fastest pace in more than four years, a separate report showed.
The New York-based Conference Board’s gauge of the outlook for the next three to six months rose 0.9 percent, more than forecast, as the U.S. emerges from the worst recession since the 1930s.
Reviving Demand
A stronger economy would help to revive gas purchases from factories, steel mills and chemical plants, which together account for 29 percent of U.S. consumption. Power generation represents 29 percent of gas demand and residential use is 21 percent of total consumption.
Below-normal temperatures, which lifted demand last week, will cover the country from Chicago to New York and as far south as Texas in the next two weeks, according to Commodity Weather Group of Bethesda, Maryland. About 52 percent of U.S. households rely on natural gas for heat.
“In the short term, the withdrawal helps and keeps gas from going below $5,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “There’s a bit of bid under gas, though we have to watch because there’s a good El Nino in place, which typically isn’t good for the gas market.”
A “moderate-strength” El Nino will persist through spring, bringing an increased chance of above-normal temperatures in the Midwest in January, according to a monthly outlook today from the U.S. Climate Prediction Center in Camp Springs, Maryland.
Warming Weather
Mild weather next month in Wisconsin, Illinois and Minnesota would limit demand for gas as a heating fuel, said Hanold. He expects next week’s supply report will show a smaller withdrawal than today. About 72 percent of households in the Midwest rely on natural gas for heat.
El Nino is a warming of the ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns.
Wholesale natural gas prices at the benchmark Henry Hub in Erath, Louisiana, rose 8.16 cents, or 1.5 percent, to $5.6498 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 352,001 contracts as of 3:24 p.m., compared with a three-month daily average of 249,000. Volume totaled 289,945 yesterday. Open interest was 727,852 contracts, compared with the three-month average of 713,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net
Last Updated: December 17, 2009 15:50 EST
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