THE WALL STREET JOURNAL

Chill Pushes Up Natural-Gas Prices
Surging Demand for Heating Reduces Stockpiles More Than
Expected; More Typical for January


By Timothy Puko / Updated Nov. 20, 2014 7:43 p.m. ET


An early blast of winter cold is reviving concerns about natural-gas supplies and sending prices to a
nearly five-month high.


U.S. homes and businesses are likely to use an unusually large amount of natural gas for heating this
month, as an Arctic chill descends over much of the country. MDA Information Systems LLC, a
private forecaster, predicts heating-degree days, a proxy for heating demand, will reach a record for
November in data going back to 2000.


On Thursday, government data showed natural-gas stockpiles shrank by more than expected last
week, reflecting surging demand.


The price of gas for December delivery ended up 11.8 cents, or 2.7%, at $4.489 per million British
thermal units on the New York Mercantile Exchange, the highest settlement price since June 25. The
futures are up nearly 13% in a week.

 

 

The larger-than-expected storage drawdown is feeding fears that the natural-gas market is setting up
for a repeat of last winter, when prices repeatedly spiked during stretches of record cold.


Some investors say they are placing bullish bets because they don’t want to be left out if November’s
weather is a sign of things to come. A weather-driven rally would also be a rare opportunity to wager
on rising commodities prices at a time when markets ranging from crude-oil to cotton are hitting
multiyear lows.


“Everyone thinks it’s not possible” to have another winter like last year, said Brian Bradshaw,
portfolio manager at BP Capital in Dallas, which manages $1 billion. “But the weather does
impossible things all the time.”


The fund, founded by T. Boone Pickens, is bearish on gas prices over the next year, but took shortterm
bullish positions during the past two weeks to account for the early arrival of cold weather, Mr.
Bradshaw said.


In February, prices shot past $6 per million BTUs as soaring gas demand sent stockpiles to an 11-
year low.


About half of U.S. homes rely on natural gas for heat, so weather is the biggest price driver.


Once temperatures climbed in the spring, prices fell steadily through late October, as producers were
able to add large amounts of gas into storage. But they have started climbing again this month.


Utilities and other gas consumers withdrew 17 billion cubic feet of natural gas in the week ended
Nov. 14, compared with the 11 bcf withdrawal that was expected by analysts and brokers in a Wall
Street Journal survey. It was the first time storage levels fell since last winter.


Some investors think rising U.S. production will make it difficult for gas prices to hold on to any
weather-related gains. The U.S. drilling boom has the potential to produce a supply glut by the
spring, they say.


“Ample supply…will tend to drive prices down unless intense [cold] weather patterns persist and
dramatically draw down inventories quickly,” said Tim Alford, managing director at Armored Wolf,
adviser of the $404 million Eaton Vance EV +0.13% Commodity Strategy Fund.


Others say the recent cold snap was severe enough to put a serious dent in gas supplies that will only
continue to dwindle this winter. Preliminary pipeline-usage data suggest demand will be large
enough to drain stockpiles by more than 150 bcf this week, analysts said.


That amount is more typical for the peak of winter in January, rather than late fall, Teri Viswanath, a
natural-gas strategist at BNP Paribas SA, BNP.FR +4.02% said in a note to clients.


Miranda Davis, managing director at Quintium Advisors LLC, is using natural gas as a hedge in case
the cold weather hurts economic growth, as it did last winter. If cold weather keeps people inside,
limiting broader spending and production, they would spend more on energy for heat.


Her $41 million BPV Core Diversification Fund has 3.25% in an exchange-traded fund designed to
track natural-gas prices. Ms. Davis added to the position at the end of the summer.


“We thought below $4 was a pretty attractive entry point,” Ms. Davis said. “There tend to be
concerns about the economy when it gets so cold, so it is nice to have something in the portfolio like
energy…that does well during those times.”


—Nicole Friedman contributed to this article.


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