Natural gas futures jumped to a three-month high in New York after a government report showed that U.S. stockpiles last week fell to the lowest level in almost two years.
Gas surged as much as 3.5% after an Energy Information Administration said inventories fell 145 billion cubic feet last week to 1.938 trillion, the least since May 13, 2011. Analyst estimates compiled by Bloomberg showed an expected decline of 137 billion.
“The inventory withdrawal was surprisingly high,” said Gordy Elliott, a risk-management specialist at INTL FCStone Inc. in St. Louis Park, Minnesota. “We’re seeing a strong continuation of heating demand. If we can get past $3.85, we can rally to the $4 level.”
Natural gas for April delivery climbed 10.9 cents, or 3%, to $3.789 per million British thermal units at 1:37 p.m. on the New York Mercantile Exchange after rising to $3.81, the highest intraday price since Nov. 29. Volume was more than double the 100-day average for the time of day. Gas has climbed 13% this year.
The discount of April contracts to October, a gauge of summer demand for gas, narrowed 2.2 cents to 14.8 cents, the smallest gap since Nov. 23. The discount over the past month has been at its smallest compared with any April-October spread for the same period going back to 2004. The discount of October to January contracts narrowed 2.6 cents to 31.1 cents.
April $4 calls were the most active gas options in electronic trading. They rose 1.1 cent to 2.1 cents per million Btu on volume of 975 contracts as of 1:57 p.m. Calls accounted for 63% of options volume.
Implied volatility for at-the-money gas options expiring in April was 32.53%, down from 33.87% yesterday. May options volatility was 30.82%, down from 30.91%.
The stockpile decrease was almost twice the five-year average decline for the week of 74 billion cubic feet, department data show. A surplus to the five-year average fell to 11.4% from 14.8% the previous week. Supplies were 18.5% below year-earlier inventories, compared with 14.8% last week.
This week’s storage withdrawal signals “some further tightening of the supply/demand balance relative to the recent baseline,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in a note to clients. “Combined with the forecast for ongoing colder than normal temperatures, this ratchets up the pressure for prices to move higher in the near term.”
Northern states will see below-normal temperatures through March 28, MDA Weather Services said. Gas futures have rallied 24% from a 2013 intraday low of $3.05 per million Btu on Jan. 2 as waves of unusually frigid weather spurred heating demand late in the heating season.
The low in Chicago on March 18 may be 22 degrees Fahrenheit (minus 6 Celsius), 10 below the usual reading, and two days later Boston may fall to 9 below normal at 23 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
About 50% of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm. Gas demand typically slumps between the peak heating-demand season and before hot weather drives power demand to run air conditioners.
Marketed gas production will average a record 69.6 billion cubic feet a day this year, down from 70.02 billion estimated in February, the Energy Information Administration said in its monthly Short-Term Energy Outlook, released yesterday in Washington. Output will rise 0.7% from 2012.
Cold weather has reduced output during the winter as water produced with gas crystallizes and blocks flows from wells.
“As natural gas production in the United States shifts inland, well freeze-offs have become a greater supply disruption risk during the winter,” the EIA said in the report.
The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84% of its energy needs in the first 11 months of last year, government data show. If the trend continued through 2012, it will be the highest level of self-sufficiency since 1991.
Output from U.S. nuclear plants fell 26 megawatts to 83,309 megawatts today, or 82% of capacity, the least since Nov. 30, according to U.S. Nuclear Regulatory Commission data compiled by Bloomberg. Production has fallen 13% from this year’s high reached on Feb. 1.
Reactor maintenance shutdowns, usually undertaken in the U.S. spring or fall, when energy use is lowest, may increase consumption of natural gas and coal to generate electricity.