Natural gas watches storage numbers as cold blast takes toll

Cold as ice

The Arctic blast that has descended on the U.S. has been impacting commodity markets in more ways than one. Volume seems lighter perhaps causing a flash crash in gold (COMEX:GCG14) and regional spikes in natural gas prices (NYMEX:NGG14) that will soon cost consumers plenty. You also have frost warnings going down to Florida driving orange juice (NYBOT:OJH14), and cattle prices are rising as cold temperatures may make it hard to get to market. You have the winter wheat at risk as cold temperatures could kill some of the plants that are in dormancy. On top of that, natural gas and oil production in some parts are getting frozen in as U.S. temperatures hit all-time record lows. Welcome to the ice age.

Slowing production from the massive Bakken formation will take a toll on production as cold temperatures will slow output from North Dakota to Canada.

The Wall Street Journal reported that natural gas, for Tuesday delivery, rose as high as $90 a million. British thermal units at a pipeline delivery point in New Jersey where New York City gas prices are set, according to Intercontinental Exchange Group Inc.  On Friday, gas there traded at an average of $13.6102/mmBtu. Two other trading hubs, where natural gas is bought for states from South Carolina to New Jersey, each saw prices reach a record of $95/mmBtu. Prices for the fuel often jump during cold weather, which boosts demand for gas-powered heating in homes and offices. New York City prices typically top out between $40 and $50/mmBtu when a cold front approaches, according to historical data. But supplies are expected to be particularly stretched with temperatures forecast to fall to around 10 degrees Fahrenheit overnight. The Journal says that the price surge along the East Coast underscores how the nationwide cold shock is causing demand for natural gas to skyrocket, stretching supplies in certain markets even as inventories remain high at a national level.

This comes after Dow Jones reports that money managers held the biggest bet on rising Nymex natural gas futures prices last week in at least seven years, CFTC data show. Hedge funds, pension funds and others inched their net-long position in natural gas futures and options to 134,994 from 134,670 in the prior week and the highest net-long position since at least June 2006. In the week ending Dec. 31, money managers raised their long positions, or bets on rising prices, by 10,274 and boosted their short positions, or bets on falling prices, by 9,951. Front-month natural-gas futures fell 4.2% to $4.23/mmBtu in the reporting period, dropping from levels that were close to 2 1/2-year highs.

Futures prices are up more than 20% since the start of November as frigid temperatures blanketed much of the Midwest and Northeast. Prices could rise further if storage levels are depleted by the latest cold snap or forecasters call for more low temperatures ahead, analysts said. For now, utilities are bearing the extra cost, but higher prices would likely be passed on to consumers in later months according to the Journal. On Monday, February gas futures, which reflect prices in Louisiana but are used as a benchmark nationwide, ended almost unchanged at $4.306/mmBtu on the New York Mercantile Exchange.

WFTV in Orlando reports that temperatures began to plunge Monday night and early Tuesday morning as central Florida faced some of its coldest weather of the winter season. A hard freeze warning was issued for the northern half of the state and record low temperatures were expected to be broken in north Florida. Temperatures are expected to get as low as the upper teens in north Florida with the wind chill making it feel as cold as zero degrees. In central Florida, low temperatures are expected to be in the mid-20s, with a light freeze possible in downtown Orlando. Temps around 32 degrees are expected in South Florida by daybreak over the interior, according to Channel 9 chief meteorologist Tom Terry.  "Tonight will be our coldest weather since 2010," said meteorologist Brian Shields. "We'll have widespread 20s and a few low 30s, plus it will be windy. That means it will feel more like the teens and low 20s when you step outdoors Tuesday morning. And tomorrow during the day, we'll only top out in the middle 40s, which is about 30 degrees below average."  The AP reports that the actively traded March contract for frozen orange juice concentrate rose 3.85 cents, or 3 percent, to $1.436 a pound. Florida is expecting temperatures to fall into the 30s in part of the state Tuesday, but a Florida Citrus Mutual spokesman said temperatures must be at 28 degrees or lower four hours straight for fruit to freeze badly.

Cattle and hog prices are rising as well as the cold has brought the cash market to a halt.  Cattle Prices hit a record high as cold temperatures added more to an industry.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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