Biggest fourth-quarter gas rally in 16 years may spill into 2017

NEW YORK (Bloomberg) -- U.S. natural gas prices are on track to cap their biggest fourth-quarter rally in 16 years, turning the fuel into the best-performing commodity of the year. And gas bulls are betting things will get even better.

The biggest drop in U.S. natural gas supplies since a polar vortex sent temperatures plunging two years ago will keep prices of the heating fuel rising into the new year, according to eight out of 10 traders and analysts surveyed by Bloomberg. The rest were split between neutral and bearish calls.

Shrinking gas inventories threaten to boost prices of the fuel just as homes, businesses and power generators depend on it the most to keep warm during the winter. It marks a dramatic turnaround for a market that’s been plagued by a glut of gas supplies since the shale boom touched off an unprecedented surge in U.S. production. Last week, the nation saw its biggest decline in stockpiles since February 2014.

“It wasn’t super cold, and you still have that massive overall draw,” said Kyle Cooper, director of research with IAF Advisors in Houston. January, which is historically the coldest time of the year, may deliver a record decline in stockpiles, he said.

Gas futures are up 3.8% so far this week, settling at $3.802/MMbtu Thursday on the New York Mercantile Exchange. Prices had risen to the highest level in two years a day earlier.  

Inventories of the heating and power-plant fuel fell by 237 Bcf last week to 3.36 Tcf, wiping out a surplus versus the five-year average for the first time since it emerged 19 months ago, U.S. Energy Information Administration data showed Thursday.

Looking ahead, temperatures well below normal will move across the U.S. West and into the Midwest from Jan. 3 through Jan. 7, said Matt Rogers, president of Commodity Weather Group LLC. Unusually warm weather on the East Coast next week is also forecast to fade, with temperatures swinging to more seasonal norms in the second week of January.