U.S. Natural Gas Extends Historic Rally as Cold Hits East Coast
(Bloomberg) -- U.S. natural gas futures are off to the strongest start to a year since their debut more than three decades ago as frigid weather stokes heating demand and traders rush to unwind bearish bets.
Futures for February delivery climbed 14% to settle at $4.857 per million British thermal units on Wednesday, bringing the year-to-date advance to a record 30%. Weather forecasts are turning colder for major population centers along the East Coast while a winter storm is expected to slam the South over the weekend.
“The move for now is about short covering and how much colder weather can get into January through February,” said Dennis Kissler, a senior vice president at Bok Financial Securities Inc. “Add in the tight supplies in Europe that may bleed over to Asia, and no one wants to be short.”
Traders are bracing for a government report on Thursday that’s expected to show the biggest drawdown of stored gas supplies this winter. Inventories held in salt caverns and depleted aquifers probably fell by 178 billion cubic feet last week, based on the average of analysts’ forecasts. A pull on storage of that magnitude would be the biggest since last year’s February freeze that killed hundreds of people and paralyzed Texas for the better part of a week. The tally is scheduled for release at 10:30 a.m. in Washington.
Front-month futures reached the highest seasonal price since 2010. Traders holding bearish positions are buying to close out their bets as the price crossed both the 200- and 50-day moving averages, which are bullish technical signals. Risk premium is being added back to winter gas prices, with the front-month contract advancing at almost twice the pace of April futures.
Speculative buyers could also be helping drive the rally, said Gary Cunningham, director of market research at Tradition Energy. Still, the 9-day relative-strength index has risen to a level that suggests futures are overbought and due for a correction.
A major winter storm is expected to sweep the South in a matter of days and climb up the East Coast on Monday. Another cold blast is foreseen across eastern parts of the nation starting Jan. 22, according to Atmoshperic G2.
“The extended of the outlook for January continues to strengthen and as a result we are seeing prices leap higher here,” said John Kilduff, co-founder of Again Capital LLC. “The weather, which had not been a factor really all fall and the start of the winter, has now suddenly become a major factor for the market.”
Meanwhile, propane stockpiles in the Midwest plunged to the lowest in almost five months while Gulf Coast inventories dipped the most since January 2021, the Energy Information Administration said on Wednesday. Propane is used as furnace fuel in parts of the Midwest and Gulf Coast, which burn more of the gas than any other regions on the U.S.
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