US natural gas futures rose nearly 7 percent on Tuesday as the heating fuel hit six-week highs and extended gains for a fourth straight day on cold weather and ahead of the expiry of the front-month contract. Since their December 22 close, gas futures on the New York Mercantile Exchange have risen more than 25 percent. But even after the year-end rally, natural gas was headed to finish 2015 down 18 percent.
Gas futures are up nearly 40 percent from the 16-year lows hit 11 days ago when weather across most of the United States was still unseasonably warm. For the month of December, natural gas is up about 6 percent, the market's first monthly gain in six months. "A much improved chart picture and some colder temperature forecasts have proven sufficient to ignite a major spree of short covering," said Jim Ritterbusch of Chicago-based energy markets consultancy Ritterbusch & Associates. "But, from here, we feel that this market will require more solid evidence of some broad based much below normal temperature trends if this rally is to be sustained."
NYMEX's front-month gas contract, January, settled up 14.4 cents at $2.372 per million British thermal units. The session high was $2.387, a peak since November 18. The more-actively traded February, which will be NYMEX's front-month gas contract from Wednesday, finished up 11.4 cents at $2.370. Contract expiry on NYMEX typically sees last-minute position-squaring by traders and investors anticipating pricing trends in coming months. The January contract has gained more than 45 cents over the past four days, and more than 65 cents since December 18, when it hit a 1999 low below $1.70.
Thomson Reuters Analytics shows 479 heating degree days (HHs) for the next two weeks in the lower 48 US states, versus the norm of 460. HDDs are measured by the difference between the average temperature outside and the 70 Fahrenheit (21 Celsius) level, which is deemed to be neutral indoors for heating. Bets for colder weather have slashed the premium for NYMEX's April contract versus March, a spread trade known as the "widow-maker," to just 2 cents per mmBtu from a high of nearly 70 cents in late November. The US Energy Information Administration (EIA) said natural gas stockpiles fell 32 billion cubic feet (bcf) in the week to December 18. The EIA's reading for the week to December 25 is due on Thursday.

Copyright Reuters, 2016

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