US natural gas prices surged more than 9 percent on Monday, the largest one-day gain in two months, as forecasts for colder temperatures led to bets that long-delayed winter weather was finally arriving. Gas futures on New York Mercantile Exchange rallied for a third straight day, breaking forcefully from 16-year lows hit 10 days ago on fears of oversupply in the fuel, used for both heating and power generation, amid mild temperatures.
"It took two months but winter is finally here and natural gas futures are moving along with them," said Aaron Calder, analyst at Gelber & Associates, a gas market consultancy in Houston. NYMEX's front-month gas contract was up 18.2 cents at $2.211 per million British thermal units by 1:36 pm EST (1836 GMT). The intraday high was $2.223, the highest since December 2.
Expectations of an imminent end to the balmy weather that persisted through most of autumn helped gas futures to rally more than 30 percent since NYMEX's front-month contract hit $1.684 on December 18, a low last seen in 1999. On Monday, Thomson Reuters Analytics forecast that heating degree days (HDDs) in the lower 48 US states would rise to nearly 467 over the next two weeks compared with the norm of 460 this time of year. HDDs are based on days when indoor temperatures are below 65 Fahrenheit (18 Celcius) without heating. MDA Weather Forecasts said its 6-10 day forecast showed that "troughing and northerly flow" could bring colder risks to the US East Coast, a key market for gas consumption.
"The forecast over the holiday weekend trends colder in this period," the Gaithersburg, Maryland-based firm said in a report. The US Energy Information Administration said natural gas stockpiles fell 32 billion cubic feet (bcf) in the week to December 18, compared with a forecast for a 25 bcf draw. The reading for the week to December 25 is due this week. Analysts generally are expecting a sharper draw than the 29 bcf seen a year ago.
Even so, some like Citi Futures' Tim Evans, think the market will remain oversupplied in the near-term. "While cooler temperatures will mean larger net withdrawals from storage in the weeks ahead, we still expect the drain on working gas inventories to average somewhat below five-year average rates," Evans said in a note.