U.S. natural gas staged the biggest rally in two months as a frigid forecast signaled demand for the power-plant fuel may surge to new highs through the start of 2018.
The eastern half of the country is locked in a deep freeze with the potential to generate the highest weather-driven gas demand for the last week of December and the first few days of January in data going back to the 1950s, according to MDA Weather Services. Chicago’s low on New Year’s Day will be minus 1 degree Fahrenheit (minus 18 Celsius), 11 below normal, according to AccuWeather Inc.
The cold wave that started this week has catapulted U.S. gas consumption to an all-time high for this time of year while simultaneously curtailing record production from shale deposits that had helped cap prices. The one-two punch jolted gas futures higher Thursday after the latest computer models showed the cold persisting for the next two weeks and deepening a supply deficit.
“It’s a crazy day,” said John Borruso, director of natural gas trading at Con Edison Energy in Valhalla, New York. “They finally realize it’s winter and that it gets cold in winter.”
Gas futures for February delivery rose 6.7 percent to $2.914 per million British thermal units on the New York Mercantile Exchange, the biggest percentage gain since Oct. 30.
The number of heating degree days — a measure of weather-driven gas demand that factors in population — for the 10-day period ending Jan. 5 may total 410, which would break the record for this period of 384.8 set 50 years earlier, Bradley Harvey, lead meteorologist for MDA, said in an email. New York City’s low on Jan. 1 may be 9 degrees, 19 below normal. Two days later, Minneapolis may plunge to minus 7, AccuWeather’s website showed.
Last week stockpiles fell by 112 billion to 3.332 trillion, widening a deficit versus the five-year average to 2.5 percent, the U.S. Energy Information Administration said.
“The next report should be bigger because it’s really cold right now and the weather is getting colder,” said Art Gelber, president of Gelber & Associates in Houston.
His early estimate is for a draw of around 180 billion to 210 billion. Phil Flynn, senior market analyst at Price Futures Group in Chicago, expects to see a draw closer to 276 billion. A draw in line with the low end of those forecasts is poised to widen the U.S. supply deficit versus the five-year average and year-earlier levels.
Along with a surge in demand, freezing temperatures are curtailing production at a rate of 1 billion cubic feet a day to 2 billion from Dec. 22 through Jan. 11, said Shunondo Basu, an analyst with Bloomberg New Energy Finance.