Natural gas soars 20 percent on concerns about winter supplies
Natural gas prices are soaring as forecasts for lingering U.S. cold spurred concern that supplies may not be adequate to meet demand over the winter.
Gas for December delivery rose as much as 20 percent to $4.929 per million British thermal units, the highest since February 2014, when a “polar vortex” brought an arctic chill to the Midwest and East. The volume of trading on the New York Mercantile Exchange was more than three times the 100-day average.
Prices have been driven by “a sharp cold revision in the winter weather outlook,” said Devin McDermott, a commodities strategist at Morgan Stanley. “We see modest downside from here assuming current weather forecasts, but a very wide range of potential short-term prices.”
It was only on Tuesday that gas exceeded the $4 mark for the first time in four years. It has surged this month amid concern that stockpiles, at a 15-year seasonal low, won’t be enough to meet winter heating needs, even as production hovers near a record.
Domestic demand from power plants and industrial users has climbed to an all-time high while the United States. is exporting unprecedented volumes of the fuel to Mexico and overseas. Cheniere Energy Inc. said Wednesday it started producing liquefied natural gas at its new $15 billion Corpus Christi export terminal in Texas, the third such plant to begin operating in the continental United States.
Gas is also climbing amid turmoil in international crude markets, with U.S. benchmark prices gaining Wednesday after falling 7.1 percent a day earlier.
Despite the autumn chill, the magnitude of the latest rally suggests traders aren’t just reacting to weather forecasts and supply estimates, according to Mizuho Securities USA LLC. While money managers are net-long in gas contracts, short positions rose as recently as last week, government data show.
Wednesday’s jump “has no basis in market fundamentals,” said Bob Yawger, director of the futures division at Mizuho. “It is getting cold, it might snow” and storage is lower than normal, “but that is not why we are 12 percent to 15 percent higher on the day.”