Natural gas futures swung between gains and losses after reaching a five-year high as cold weather is set to extend into March and deplete storage.
Futures for March delivery climbed as much as 4.1 percent to $6.40 per million British thermal units in electronic trading on the New York Mercantile Exchange, the highest level since Dec. 4, 2008, and were down 1.4 percent at $6.065 at 12:16 p.m. London time.
The contract rose 11 percent Wednesday. The volume of all futures traded was more than twice the 100-day average.
Prices are up 43 percent this year as waves of arctic air boosted demand for heating fuel, cutting gas stockpiles in early February to the lowest level for that time of year since 2004.
“Weather forecasts will cause price volatility through March but we expect end-March storage to come in at 1.1 trillion cubic feet, the lowest since 2004,” Adam Longson, a New York- based analyst for Morgan Stanley, said in an e-mailed report.
The market overestimates costs to refill stores and an average price of $4.35 per million Btu for the injection season “should be high enough to support adequate restocking by October,” Longson said. “Prices should trend lower through summer” and may fall below $4 in the third quarter, according to the report.
If stocks fall below 1 trillion cubic feet, a summer price of $5.10 will allow for “adequate gas-to-coal switching to refill storage,” Credit Suisse analysts led by Ray Farris in Singapore said in a research note.
A storm will bring heavy, wind-driven snow to the Midwest and western Great Lakes, Michael Doll, a meteorologist at AccuWeather Inc. in State College, Pennsylvania, said on the forecaster’s website.
The low in Chicago on Feb. 26 will be 8 degrees Fahrenheit (minus 13 degrees Celsius), 17 below normal, according to AccuWeather. About 49 percent of U.S. households use gas for heating, with the largest consumers in the Midwest, U.S. Energy Information Administration data show.
Forecasts for the end of February and the beginning of March call for the weather to turn colder, with the lowest readings expected in the Midwest, MDA Weather Services in Gaithersburg, Maryland said.
“There’s record cold and snow, and massive heating demand is drawing down supplies at a furious pace,” said Stephen Schork, president of Schork Group Inc., a consultant in Villanova, Pennsylvania. “What’s more, weather forecasts call for another shot of very cold air at the end of this month.”
Gas inventories probably fell 257 billion cubic feet last week, based on the median of 16 analyst estimates compiled by Bloomberg before the Department of Energy report at 10:30 a.m. New York time Thursday.
Supplies totaled 1.686 trillion cubic feet in the week ended Feb. 7, 27 percent below the five-year average, a record deficit in government data going back to 2005.
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