US natural gas prices jumped Wednesday on a combination of thin holiday trading ahead of Thanksgiving, colder weather forecasts, and a bigger-than-expected draw in inventories.
Futures in New York for December jumped as high as $7.60/mmbtu, or about 82 cents, on cooler forecasts, peaking around 0900 ET. Prices slid from the high but gained slightly after EIA reported a bigger-than-expected draw in inventories at 1030 ET. As of 1400 ET, prices were up 59 cents to $7.37.
"The United States has officially flipped over to withdrawal season as the cold set across the East and Midwest in the last week, driving gas burns higher and ramping industrial and residential plus commercial (ResComm) demand. The cold was coupled with weak production in Appalachia, but strong production in South Central and Canada helped meet that rising demand," Houston-based energy firm Criterion Research said.
They added: "The current weather outlook is setting up for another burst of cold in early December, which will stack on top of the partial return of Freeport LNG in mid-December. We likely roll into January and February with record-high LNG demand to help supply Europe, so if the US winter is colder than average, it sets up a very interesting March equations of state (EOS) storage picture."
Month-ahead forecasts for the Lower 48 show what could possibly be a colder December than what the 30-year trend calls for. This would mean ResComm demand would spike due to increased heating demand and add to more significant declines in inventories.
The flip has begun as the withdrawal season from NatGas storage is underway.
For this time of year, NatGas storage is around normal levels compared to a 25-year trend. But what can happen from here, as Criterion Research explained, is colder weather and LNG exports ramping up could draw down inventories down much quicker.
Besides fundamentals, Dennis Kissler, senior vice president of Bok Financial Securities, told Bloomberg the move today was due to technical short covering as prices climbed above the 50-day and 100-day moving averages.