Natural gas futures advances on bigger-than-expected supply drop

Natural gas futures extended gains in New York after a government report showed a larger-than-forecast supply drop.

Gas rose as much as 3 percent after the Energy Department said U.S. stockpiles declined by 135 billion cubic feet last week to 3.517 trillion, exceeding the five-year average drop for the week of 111 billion. Analyst estimates compiled by Bloomberg and a survey of Bloomberg users both showed a decline of 130 billion.

“It’s a pretty big number,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “I think it will keep natural gas from taking out yesterday’s low.”

Natural gas for February delivery rose 7.1 cents, or 2.2 percent, to $3.269 per million British thermal units at 10:38 a.m. on the New York Mercantile Exchange. Gas was trading at $3.25 before the storage report was released at 10:30 a.m. Trading volume was down 19 percent from the 100-day average.

A gas surplus to the five-year average fell to 12.4 percent in the week ended Dec. 28 from 12.8 percent the previous week, the Energy Department said. Supplies were 0.7 percent above year-earlier levels, down from 2.3 percent.

Temperatures will be below normal in the western half of the U.S. from Jan. 13 through Jan. 17 and more seasonal in the Midwest, according to WSI Corp. in Andover, Massachusetts.

The low in Chicago will drop to 6 degrees Fahrenheit on Jan. 15 (minus 14 Celsius), 12 below average, according to AccuWeather Inc. in State College, Pennsylvania. Dallas and Seattle may both be 1 below normal at 36 degrees on Jan. 17. About 50 percent of U.S. households use gas for heating.

Price Outlook

While there is a potential for milder weather in mid- January that may reduce heating demand, “there are a lot of bullish fundamentals in this market,” Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a note to clients yesterday.

Lower gas prices are spurring fuel switching from coal at electricity generators while above-normal outages at nuclear plants translate to an additional 10 billion cubic feet of gas burned a week, he said.

Output from nuclear power plants slid 63 megawatts to 94,245 megawatts today, down 3.1 percent from a year ago and the lowest level for this time of year since 2008.

Reactor maintenance shutdowns or other unplanned work may increase consumption of natural gas and coal to generate electricity.

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