Natural-gas futures rally on Friday, headed for their highest finish in nearly two years, with cold weather expected to boost demand for a commodity that is running tight on supplies.
“The exceptionally low storage levels as we enter the heating season leave the price more susceptible to higher heating demand,” James Williams, energy economist at WTRG Economics, wrote in a report issued this week.
“This year we entered the withdrawal season over 600 [billion cubic feet] below normal,” he said. “The lowest we have had relative to the five-year average in the last 22 years was 266 Bcf in 2014.” The withdrawal season, when supplies start to decline as cold weather sets in, typically runs from Nov. 1 through March 31.
On the New York Mercantile Exchange Friday, December natural gas
climbed 20.8 cents, or 5.9%, to $3.753 per million British thermal units. Front-month contract prices haven’t settled at a level that high since Dec. 30, 2016, according to FactSet data.
Futures prices were also poised to end the week with a 15% gain. That would mark the largest since the week ended Feb. 21, 2014, when front-month prices rose by 17.7% for the week.
“As I look out my window and see snow falling, it appears the early onset of winter continues to boost speculation that we could see higher heating demand this year at a time when supplies are already running below average,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, who is based in Ontario, Canada.
In the U.S., the Energy Information Administration on Thursday reported a bigger-than-expected weekly rise in domestic natural-gas supplies, but inventories in storage totaled 3.208 trillion cubic feet—621 billion cubic feet below the five-year average.
“Natural gas remains the best performer in the commodity space right now,” said Tyler Richey, co-editor of the Sevens Report. Futures prices for the commodity trade nearly 26% higher year to date.
Richey, however, also noted that a pullback toward $3.20 to $3.30 is “not out of the question in the weeks ahead, especially given the right bearish headline as the market is overbought.”
Long term, “the bullish fundamentals are being underscored by the widening gap between current inventory levels and the five-year minimum levels,” he said, pointing out that the technicals are bullish as well, with prices at multimonth highs.
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