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Natural Gas Futures Rise to Six-Week High Amid U.S. Cold Snap

November 25, 2013

Nov. 25 (Bloomberg) -- Natural gas futures rose to a six- week high in New York as a blast of wintry U.S. weather stoked demand for the heating fuel.

Gas gained 0.6 percent as MDA Weather Services in Gaithersburg, Maryland, predicted a cold snap in the eastern two-thirds of the lower 48 states this week. Temperatures will moderate from the Midwest to California next week while below- normal-readings linger on the East Coast through Dec. 9.

"We finally got a taste of a good, old-fashioned winter," said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. "Right now, the forecasts are for the cold weather to stick around for a while."

Natural gas for December delivery rose 2.1 cents to $3.789 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Oct. 15. Trading volume was 22 percent above the 100-day average at 2:47 p.m. Gas has gained 13 percent this year.

December gas expires tomorrow. The more actively traded January contract rose 3.1 cents, or 0.8 percent, to $3.842. The discount of December to January widened 1 cent to 5.3 cents.

December $3.80 calls were the most active options in electronic trading. They were 2.6 cents lower at 0.1 cent per million Btu on volume of 1,281 at 2:49 p.m. Calls accounted for 48 percent of trading volume. December options expired today.

The low temperature in Chicago on Dec. 6 may be 14 degrees Fahrenheit (minus 10 Celsius), 12 below normal, according to AccuWeather Inc. in State College, Pennsylvania. New York’s low will drop to 24 degrees, 11 lower than average, while Houston may be 10 below normal at 38 degrees.

 

Chicago Cold

 

About 49 percent of U.S. households use gas for heating and 39 percent rely on electricity, according to the Energy Information Administration, the Energy Department’s statistical arm. The heating season extends from November through March.

Gas stockpiles probably fell by 1 billion cubic feet last week, according to an early estimate from Tim Evans, an energy analyst at Citi Futures Perspective in New York, in a note to clients. Dominick Chirichella, senior partner at the Energy Management Institute in New York, expects to see a decline of 5 billion. The five-year average for the period is a drop of 15 billion, EIA data show.

The EIA is scheduled to release its weekly gas inventory report a day early on Nov. 27 because the government will be closed the next day for the Thanksgiving holiday.

 

Supply Report

 

While mild weather will contribute to the small decline in stockpiles last week, a blast of cold weather this week means the withdrawal rate could jump to 120 billion cubic feet in the following report, said Aaron Calder, senior market analyst at Gelber & Associates in Houston.

U.S. inventories fell by 45 billion cubic feet in the week ended Nov. 15 to 3.789 trillion in the first decline of this heating season, EIA data show. The five-year average for the period was a drop of 2 billion. A surplus to the average narrowed to 0.4 percent from 1.5 percent the previous week, the least since a deficit of 1.2 percent on July 26.

The weather-driven rally in gas is being capped by competition from coal as a cheaper source of fuel to produce electricity and "strong technical resistance" at $3.85, Calder said.

Hedge funds became the least bullish on natural gas in 10 months, missing a rally to a five-week high as forecasts for Thanksgiving-week storms and below-normal temperatures signaled stronger demand, the Commodity Futures Trading Commission’s Nov. 22 Commitments of Traders report showed.

Money managers cut net-long positions by 3,722, or 3.9 percent, to 92,493 futures equivalents in the week ended Nov. 19, the report showed. It was the lowest level since Jan. 15.

 

--With assistance from Asjylyn Loder in New York. Editors: Bill Banker, David Marino

 

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

 

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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