Natural gas soars 20% in U.S. on concerns about winter supplies

By Christine Buurma, Rachel Adams-Heard and Simon Casey on 11/14/2018

NEW YORK and HOUSTON (Bloomberg) -- Natural gas soared the most in nine years 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% to $4.929/MMbtu, the highest since February 2014, when a “polar vortex” brought an arctic chill to the midwest and eastern U.S. The volume of trading on the New York Mercantile Exchange was more than seven times the 100-day average.

It was only on Tuesday that gas exceeded the $4 mark for the first time in four years. The rally also comes amid turmoil in international crude markets, with U.S. benchmark prices falling 7.1% Wednesday.

But although the autumn chill has helped push gas higher, the magnitude of Wednesday’s rally suggests traders aren’t just reacting to weather forecasts and supply estimates, according to Mizuho Securities USA. 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% to 15% higher on the day.”

Gas 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. The U.S. is exporting record volumes of the fuel to Mexico and overseas, and domestic demand from power plants and industrial users has climbed to an all-time high.

Futures were up 10% at $4.512 on Wednesday. Shares of gas producers also advanced, with Range Resources up 6% in pre-market trading. Cold conditions in parts of the U.S. are stoking concern that production may be interrupted due to the freezing of well heads. “We may be seeing the first freeze-offs of the winter,” market data and analysis company Genscape Inc. said in a report Wednesday.

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