THE WALL STREET JOURNAL

 

Natural-Gas Futures Surge on Cold Weather
Demand for Heating Could Eat Into Gas Inventories, Say Analysts


By Christian Berthelsen / Updated Nov. 17, 2014 4:51 p.m. ET

 

Natural-gas prices on Monday soared to their biggest one-day gain in nearly nine months, as
traders and investors braced for below-normal temperatures that are expected to stoke demand
for the heating fuel.


The arrival of frigid weather early in the season is reviving concerns that another brutal winter
could strain the nation’s natural-gas supplies. Last year’s severe cold led to record gas
consumption by businesses, households and utilities and a sharp run-up in prices.


Over the weekend, several weather forecasters cut their projections for temperatures in the
eastern U.S. during the Thanksgiving holiday weekend. That has spurred analysts and traders
to draw comparisons with last winter, which also ended up being unexpectedly cold and a drag
on economic growth generally.


Natural-gas futures jumped 8% to $4.341 a million British thermal units on the New York
Mercantile Exchange. That is the largest one-day dollar and percentage gain since Feb. 19,
when gas prices hit their high for the year amid rapidly dwindling supplies.


“This is the most volatile start of the season we’ve ever experienced,” said Teri Viswanath, a
gas market strategist at BNP Paribas in New York. “We still have this market memory of what
happened last winter.”


Traders have sent gas futures on big swings in recent weeks amid debate over the weather and
the ability of natural-gas producers to meet the needs of residential and industrial consumers in
the event of a prolonged cold spell.


Gas prices are up 9.2% in the last two trading sessions after posting losses of nearly that size in
the previous four. Monday’s closing price is the highest in a little over a week, but it is 29%
below the Feb. 19 level.


“This move looks impulsive,” analysts at Houston research consultancy Gelber & Associates
wrote in a note to clients. “There is enough production to handle this colder-than-normal winter.”
But the analysts noted that if low temperatures again forced companies to scale back output-a
situation that occurred last winter—price spikes would result.

 

 

After the mass of frigid air over the Midwest and Northeast dissipates at the end of this week,
the U.S. is expected to get a brief respite ahead of Thanksgiving, which falls on Nov. 27. After
that, another bout of bitter cold is forecast to descend on the eastern half of the country.


U.S. natural-gas stockpiles have risen sharply during the summer and fall. Last week, the
amount of gas in storage grew for the 32nd consecutive week, and the volumes added were
more than market participants expected.


Some analysts estimate that this week’s Energy Information Administration reading on
stockpiles, due out on Thursday and covering the week ended Nov. 14, will show the first
decline of the season.


Total natural-gas inventories stood at 3.6 trillion cubic feet after last week’s storage increase, a
level analysts say will be adequate for even a severe winter. Still, inventories remain 6.2%
below average levels for this time of year.


Write to Christian Berthelsen at christian.berthelsen@wsj.com


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES.