Natural Gas Has Biggest Two-Day Rally in Nine Months on Cold Snap in U.S.
Dec. 2 (Bloomberg) -- Natural gas traded in New York rose, for the biggest two-day rally in nine months, on forecasts for colder-than-normal weather during the next two weeks that will boost heating demand in the eastern U.S.
Forecasts indicate that temperatures in the mid-Atlantic states will be lower than previously expected through Dec. 16, Earth Satellite Corp. said. Gas futures jumped 13 percent so far this week, the largest two-day rally since prices soared to an all-time high in late February.
``The rise in prices has been so swift the market is kind of running on its own momentum now,'' said Pete Liszewski, a gas trader at OGE Energy Resources Inc. in Oklahoma City.
Gas for January delivery rose 29.6 cents, or 5.6 percent, to $5.579 per million British thermal units on the New York Mercantile Exchange, the highest closing price since Oct. 10.
The January contract was poised to extend gains after breaking through the 200-day moving average around 7:20 a.m. during the electronic session. Moving averages are technical indicators followed by analysts and traders who use charts of past movements to judge trends.
Gas futures are up 21 percent in the past six sessions, the biggest rally since a 67 percent gain during seven sessions in late February, when harsh weather pushed Nymex futures to a record $11.899 per million Btu.
``People are using more gas now'' to run furnaces, said Martell Brower, director of gas operations at Lower Valley Energy in Jackson, Wyoming.
Spot-market prices at the benchmark Henry Hub in Louisiana are up 22 percent since Nov. 15, the largest gain for that period since 1996, Bloomberg data showed. Gas prices jumped 34 percent during the second half of November 1996 as a series of storms dumped heavy snow and ice across the Midwest and Northeast, according to the U.S. National Climatic Data Center.
Speculator Positions
Prices also rose as large speculative funds bought contracts to close previous bets that prices would decline. Short positions, or contracts sold, outnumbered longs by 48,806 contracts as of Nov. 25, down 7.4 percent from a 21-month high a week earlier, Commodity Futures Trading Commission data showed.
Speculative traders ``are getting squeezed and when that happens they have no choice but to pay whatever the market is demanding,'' Liszewski said.
Utilities and corporate fuel buyers are extending bets that prices will rise by increasing their long positions, CFTC and Nymex data indicate.
Long positions held by so-called commercial traders outnumbered shorts by 24,787 contracts as of Nov. 25, up 8.4 percent from the previous week and close to the 21-month high of 26,548 reached on Nov. 11, according to CFTC figures.
Going Long
Open interest in January futures increased 1.4 percent yesterday as prices soared, Nymex figures showed. Rising open interest when prices are gaining indicates traders are increasing long positions, said Randy Bitsky, a trader at Constellation Energy Group Inc.'s Alliance Energy services unit in Louisville, Kentucky.
The rally intensified during the final 12 minutes of trading after prices rose above $5.50, a level where trading activity was clustered in call options tied to the January futures contracts. Call options confer the right to buy futures at a pre-set price.
Cold Surprise
Spot-market gas prices in New England and the New York City area yesterday soared 30 percent and 20 percent, respectively, as an influx of cold boosted demand at pipeline hubs handling gas from the Gulf Coast and Canada, according to Bloomberg data.
The burst of demand surprised traders and fuel buyers after weather forecasts last week said mild temperatures would dominate the northern cities of the U.S. through the first half of this week.
The National Weather Service and some private meteorology companies last week were predicting below-normal heating demand for the central and eastern U.S. through this week. In a forecast released yesterday after the close of trading, the weather service said above-normal temperatures will last through Dec. 11 across most of the U.S.
``This cold spell will surprise many who have relied upon government and private forecasters for their fuel planning because anomalous temps will last into the weekend and maybe beyond,'' ConocoPhillips analyst Jim Duncan said in a note to clients.
Utilities in the Northeast may be more willing to tap inventories to augment fresh gas from pipelines amid soaring spot- market prices. Gas stored underground from April through October cost an average of $5.25 per million Btu, according to the Federal Energy Regulatory Commission.
That's 26 percent cheaper than yesterday's $7.13 spot-market price for New England gas and 19 percent less than the $6.49 charged for the fuel in New York City and on Long Island, according to Bloomberg data.
Any withdrawals resulting from this week's cold spell would be reflected in the Energy Department's Dec. 11 gas-inventory report.
Last Updated: December 2, 2003 15:22 EST |
