NY natural gas futures climb on late winter cold spell

By Naureen S. Malik
Bloomberg News

Natural gas futures advanced in New York, heading for a third consecutive weekly gain, on speculation that the late winter Eastern U.S. cold snap will help burn off excess fuel.

Gas rose as much as 1.3 percent as MDA Weather Services predicted another round of below-normal temperatures for the East next week. The futures jumped 3.2 percent yesterday after a government report showed a stockpile drop that exceeded analyst estimates, reducing a surplus to the five-year average for a second week.

“We still have lingering cold and we are going to continue to tighten the supply and demand balance,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The problem is, you have very little left of winter heating.”

Natural gas for April delivery rose 4.4 cents, or 1.2 percent, to $3.626 per million British thermal units at 1:08 p.m. on the New York Mercantile Exchange after rising to $3.63, the highest intraday price since Jan. 22. Trading volume was 18 percent above the 100-day average for the time of day. The futures are up 4.9 percent this week, heading for the longest set of weekly gains since October.

April $4 calls were the most active gas options in electronic trading. They rose 0.2 cent to 0.8 cent per million Btu on volume of 813 contracts at 1:10 p.m. Calls accounted for 53 percent of options volume.

Implied volatility for at-the-money gas options expiring in April was 30.60 percent, down from 31.22 percent yesterday. May options volatility was 28.75 percent, up from 28.88 percent.

Contract Spread

The discount of April contracts to October, a gauge of summer demand for gas, narrowed 0.6 cent to 19.1 cents after dropping to 19 cents. The discount over the past month has been at its narrowest compared with any April-October spread for the same period going back to 2004.

Heavy snow will fall across the Hudson Valley north of New York City and in eastern Massachusetts today, according to the National Weather Center. One to 3 inches (2.5 to 8 centimeters) may fall on New York as the week-old storm moves out to sea.

Eastern U.S. temperatures will be normal or higher over the next 15 days, though the warmer trend may be interrupted by a shot of cold air from March 13 through March 17, according to MDA in Gaithersburg, Maryland.

Nuclear Production

Output from U.S. nuclear plants fell 1.1 percent from yesterday to 85,092 megawatts, or 83 percent of capacity, according to U.S. Nuclear Regulatory Commission data compiled by Bloomberg. Production has fallen 11 percent from this year’s high reached on Feb. 1.

Reactor maintenance shutdowns, usually undertaken in the U.S. spring or fall when energy use is lowest, may increase consumption of natural gas and coal to generate electricity.

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, a unit of the Energy Department. Gas consumption in the nation typically slumps after the end of heating season and before hotter weather drives air-conditioner use.

“The weather does turn colder, after the upcoming spate of mild temperatures, but not enough to propel prices much higher,” Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today. “As we get into the shoulder season, there will be considerable pressure on prices, since production levels remain robust.”

Supply Report

Gas stockpiles fell 146 billion cubic feet in the week ended March 1 to 2.083 trillion, more than the five-year average drop of 107 billion, the EIA said yesterday. Analyst estimates compiled by Bloomberg showed an expected decline of 132 billion.

A supply deficit to year-earlier levels widened to 14.8 percent from 12.1 percent the previous week, the most since July 2008. A surplus to the five-year average narrowed to 14.8 percent from 16 percent the previous week.

U.S. production in December fell for the first time in four months, capping the slowest annual growth rate in three years, according to the monthly EIA-914 report on Feb. 28. Output slipped 0.7 percent to 82.57 billion cubic feet a day as operators in Louisiana, Texas and the Gulf of Mexico shut wells. Production was up 0.6 percent from December 2011.

The boom in oil and natural gas output helped the U.S. meet 84 percent of its energy needs in the first 11 months of last year, government data show. If the trend continued through 2012, it will be the highest level of self-sufficiency since 1991.