Leading up to today's report, Natural gas prices rose sharply Wednesday as forecasts called for colder weather and as futures’ expiration likely forced sellers to buy and close out their positions.
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Natural gas wholesale contracts for January delivery gained 16.9 cents, or 4.49%, to settle at $3.93 a million British thermal units on the New York Mercantile Exchange, the highest settlement value in more than two years. The more actively traded February contract rose 13.2 cents, or 3.51%, to $3.898 a million British thermal units.
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Natural gas has been on a tear as weather forecasts have shifted colder. The rally had paused earlier Wednesday as market participants took profits and awaited more information about January temperatures, but prices surged at the end of the session as traders scrambled to close out positions, brokers and analysts said.
Forecasts of colder weather as natural gas stockpiles shrink are also lifting prices, analysts said.
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Weather models are suggesting that a blast of cold Arctic air will lower temperatures across the U.S. in January, ending a spate of mild weather that weighed on prices in recent weeks. Winter weather is the biggest driver for natural gas demand and often for prices, since about half of U.S. homes use natural gas for heat.
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Low temperatures in December have already led to high demand. Analysts and traders are expecting the U.S. Energy Information Administration to report Thursday that stockpiles shrank by 221.5 billion cubic feet in the week ended Friday, nearly three times the usual withdrawal from storage this time of year, according to the average forecast of analysts, brokers and traders surveyed by The Wall Street Journal. That would bring the amount of natural gas in storage below the five-year average.
See a recap of previous weeks EIA storage reports here.
EIA Natural Gas Storage Report 12-29-16
Working gas in storage was 3,360 Bcf as of Friday, December 23, 2016, according to EIA estimates. This represents a net decline of 237 Bcf from the previous week. Stocks were 413 Bcf less than last year at this time and 79 Bcf below the five-year average of 3,439 Bcf. At 3,360 Bcf, total working gas is within the five-year historical range.
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Analysts expected a draw of 222 bcf. As of 10:32 ET, natural gas futures were trading lower by 1.2% to $3.851.
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Review a recap of previous weeks EIA Natural Gas inventory Reports.
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