US natural gas futures jump on rising demand

US natural gas futures jumped over 5 percent on Friday to an eight-day high on forecasts for cooler weather and rising heating demand through early December. While both the European and US weather models called for cooler weather over the next two weeks, traders noted the European model continued to forecast warmer-than-normal temperatures during that time. The US model, however, was now projecting near-normal cold.
Front-month gas futures for December delivery on the New York Mercantile Exchange rose 14 cents, or 5.2 percent, to settle at $2.843 per million British thermal units, the highest level since November 8. That was the biggest daily percentage gain since the December contract became the front-month on October 28.
That put the front-month up for the first week in three, gaining almost 9 percent this week after losing nearly 16 percent over the prior two weeks. Thomson Reuters projected US gas usage would rise to an average of 87.4 billion cubic feet per day next week and 91.0 bcfd in two weeks from 77.4 bcfd this week as US consumption and exports increase.
Gas supplies for the next two weeks, meanwhile, should remain about the same as this week at around 78.1 bcfd, the data showed. Supplies consist of US production and Canadian imports.
Past supply-demand imbalances have enabled utilities to keep adding gas into storage during what is usually the start of the industry's November-March withdrawal season. Utilities added 30 billion cubic feet of gas into storage during the week ended November 11, boosting stockpiles to a record high of 4.047 trillion cubic feet. Analysts projected this week's mild weather would push inventories up for at least another week.
But if the forecast for near-normal cold in December, January and February turns out to be correct, analysts said stockpiles would not remain at record highs for long as utilities quickly pull gas out of storage caverns to meet expected increases in heating demand, especially with US production still at its lowest level since 2013.
US production averaged 70.4 bcfd over the past 30 days, compared with 72.9 bcfd during the same month a year earlier, 72.0 bcfd in 2014 and 67.3 bcfd in 2013. Output, however, has increased over the past couple of weeks, rising to an average of 70.9 bcfd over the past week as drillers pull more gas out of the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia since prices there have increased. Next-day gas at the Dominion South hub in south western Pennsylvania this week climbed to its highest level since March 2015.