Gas slid 1.4 percent as Commodity Weather Group LLC said bitter cold across the lower 48 states next week will give way to higher temperatures along the East Coast from Feb. 10 through Feb. 14. The Midwest will see still below-normal readings.
“It looks like this new cycle coming in from the west could push warmer temperatures,” said Phil Flynn, senior market analyst at Price Futures Group based in Chicago. “If temperatures moderate, we may be able to get the market back down to the lower $4s.”
Natural gas for March delivery declined 6.8 cents to settle at $4.943 per million British thermal units on the New York Mercantile Exchange. Trading volume was 13 percent above the 100-day average at 2:35 p.m. Gas futures fell 4.6 percent this week. Prices jumped 17 percent in January, the biggest monthly gain since September 2012.
The premium for March gas to April narrowed to 48.9 cents from 65.3 cents yesterday. April traded 7.5 cents above May versus 7.4 cents yesterday.
Gas futures are the most volatile component in the Standard & Poor’s GSCI commodity index. Prices surged 10 percent to a four-year high of $5.557 on Jan. 28 on an outlook for more frigid weather, and plunged 8.3 percent the next day as some forecast models showed arctic air abating.
Implied volatility for March at-the-money options was 75.04 percent at 3:15 p.m., compared with 83.77 percent yesterday and 35.13 a month ago. Intraday price swings for gas futures averaged 26.7 cents this month versus 11.5 cents last month and 12 cents in January 2013.
“The whipsaw action in the market was an incredible sight,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The volatility has jumbled up the near-term price forecasting, but, with the $5 barrier having been broken with conviction, the path higher has little resistance.”
March $4 puts were the most active options in electronic trading. They were 0.2 cent lower at 2.8 cents per million Btu on volume of 1,295 at 3:26 p.m. The second most active contracts were March $6 calls, which fell 7.5 cents to 16.5 cents, also on volume of 1,295. Puts accounted for 45 percent of trading volume.
Temperatures will be seasonal or higher on the East Coast and through Texas over the next five days, forecasts show. Another surge of cold air dominating the contiguous states next week will be followed by a temporary break of milder readings lasting about a week, said Matt Rogers, president of Commodity Weather in Bethesda, Maryland.
The low in Chicago on Feb. 5 will drop to minus 3 degrees Fahrenheit (minus 19 Celsius), 22 below normal, before rising to 25 degrees, 4 above normal, on Feb. 13, according to AccuWeather Inc. in State College,Pennsylvania.
About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm.
Blasts of arctic air during the heating season have driven record gas withdrawals from storage, government data show.
U.S. stockpiles fell by 230 billion cubic feet last week to 2.193 trillion, more than the five-year average decline of 162 billion for the period, EIA data yesterday showed. A record 287 billion was withdrawn in the week ended Jan. 10. Supplies are at the lowest level for this time of the year since 2006.
An inventory deficit versus the five-year average widened to a record 16.6 percent for the seven days ended Jan. 24 from 13.2 percent the previous week.
Production losses because of frigid weather have limited supplies this winter, said Jonathan Gould, a Boston-based analyst with Genscape Inc., which tracks and analyzes gas data. Well freeze-offs have averaged 660 million cubic feet a day since Dec. 5, when the first wave of cold weather swept the U.S., he said.
The number of rigs drilling for gas rose by 2 this week to 358, Baker Hughes Inc. data today showed. The rig count is down 16 percent from a year ago.
The EIA expects gas output in the U.S. to climb for the seventh consecutive year as new wells come online at shale deposits such as the Marcellus in the Northeast, according to the government’s monthly Short-Term Energy Outlook on Jan. 7. Marketed production will expand by 2.1 percent in 2014 to a record 71.66 billion cubic feet a day.
Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, recommended that traders purchase April contracts at or below $4.25 because “prices must stay supported to balance production,” she said in a conference call today. “Production gains are being driven by market conditions rather than the need to hold acreage.”