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Natural Gas Gains as Winter Storm Boosts East Coast Fuel Use

January 21, 2014

Jan. 21 (Bloomberg) -- Natural gas gained in New York as a winter storm bringing heavy snow and frigid weather to the East Coast stoked demand for the heating fuel.

Gas rose as much as 2.8 percent as forecasters including MDA Weather Services said "bitter cold" would sweep the U.S. east of the Mississippi River through the end of January. A blast of arctic air colliding with Atlantic moisture will bring at least 6 inches (15 centimeters) of snow from Washington to Boston, according to AccuWeather Inc.

"The next 10 days of cold weather across the eastern half of the country put a bid in the market," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. "The market is starting to look like it wants to knock on the door of two-and-a-half year highs."

Natural gas for February delivery advanced 9.4 cents, or 2.2 percent, to $4.42 per million British thermal units at 10:25 a.m. on the New York Mercantile Exchange. Volume was 59 percent above the 100-day average. The futures have climbed 24 percent from a year ago.

The premium of February to March futures widened 0.3 cent to 7 cents, the most since March 29. March gas traded 18.3 cents above the April contract, compared with 17.8 cents on Jan. 17. Floor trading was closed yesterday for the Martin Luther King Jr. holiday.

March $7.45 calls were the most active options in electronic trading. They were 0.2 cent lower at 0.7 cent per million Btu on volume of 1,500 at 10:29 a.m. Calls accounted for 67 percent of trading volume.

 

Polar Air

 

The U.S. will see a second southward surge of a polar vortex next week that will bring intense cold from the north- central states through the East Coast and the South, according to MDA in Gaithersburg, Maryland.

The low temperature in Manhattan will drop to 6 degrees Fahrenheit (minus 14 Celsius), 21 below normal, while Washington’s reading will be 19 lower than average at 9 degrees, AccuWeather in State College, Pennsylvania, said on its website.

About 49 percent of U.S. households use gas for heating, with the biggest users in the Midwest, followed by the Northeast, U.S. Energy Information Administration data show.

U.S. inventories fell 287 billion cubic feet in the week ended Jan. 10 to 2.53 trillion, a record decline in data going back to 1994, an EIA report last week showed. A supply deficit to the five-year average widened to a record 14.9 percent from 10.1 percent a week earlier.

 

Production Gain

 

Gas output will climb in 2014 for the seventh consecutive year as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA said in its Jan. 7 Short- Term Energy Outlook. Marketed gas production will increase 2.1 percent to 71.66 billion cubic feet day.

"As the extended weather shock in the United States brings natural gas inventories down further, price responses in the market remain relatively modest, again highlighting that the market’s belief that production can promptly respond if necessary has changed the way the market thinks about demand shocks," Samantha Dart, an analyst with Goldman Sachs Group Inc. in London, said in a note to clients yesterday.

Gas stockpiles will drop to 1.388 trillion cubic feet by the end of March following the polar vortex this month and record drawdown in supplies, Dart said. The total was cut from 1.605 trillion estimated last month, she said.

The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.

 

--Editors: Bill Banker, Charlotte Porter

 

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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