US natural gas futures soared to a seven-week high on Thursday on a much bigger-than-expected storage draw and midday weather forecasts pointing to more freezing temperatures that will keep heating demand high over the next two weeks. Front-month gas futures on the New York Mercantile Exchange closed up 11.5 cents, or 5.1 percent, at $2.382 per million British thermal units.
Thursday's price increase erased this week's earlier losses of around 3 percent and put the front-month on track for a third week of gains, the longest weekly winning streak since July. Analysts said gas futures would likely extend the rally of over 30 percent seen over the last two weeks since the front-month fell to a 16-year low in mid December with the weather expected to remain cold for the rest of the month.
In their latest estimates, meteorologists forecast temperatures will remain seasonably cold for the rest of January, according to data from Thomson Reuters Analytics. That is a change from a couple of weeks ago when they were calling for a warmer-than-normal January due to the warming effect of the El Nino weather pattern.
For the rest of the winter, however, the forecasters were still calling for temperatures in February and March to be about 11 percent above normal. "The gas market got a clear lift from a larger-than-expected withdrawal from US storage that easily exceeded the consensus expectation," Tim Evans, energy futures specialist at Citi Futures, said in a note.
The US Energy Information Administration said utilities pulled a reclassified 117 billion cubic feet of gas from storage during the week ended January 1, the biggest withdrawal since March. That was in line with the 116 bcf draw during the same week last year but still falls short of the five-year average decrease of 129 bcf. Analysts had expected a withdrawal of 99 bcf in the latest week.
"The overall message is that the baseline supply/demand balance has tightened at least somewhat, with either some moderation in supply or greater sensitivity to winter cold than had been anticipated," Evans said. With temperatures near seasonal levels over the last couple of weeks, residential and commercial customers were using near-normal amounts of gas to keep homes and businesses warm.
The power sector, meanwhile, continued to use record amounts of gas to generate electricity because the fuel remains relatively cheap compared with coal. In 2015, the power sector consumed a record 26.4 bcf of gas per day on average, topping the previous high of 24.9 bcfd set in 2012, according to Thomson Reuters Analytics. Although it is early days for 2016, generators so far this year were consuming about 25.2 bcfd.