Weather nips gas reserve; price up

Natural gas futures in New York surged the most in four months Friday, settling at a 20-month high as cold weather helped erase a stockpile surplus and Goldman Sachs Group Inc. raised its 2013 gas price forecast.

Gas jumped 4.5 percent, the biggest one-day gain since Dec. 5, as MDA Weather Services predicted below-normal temperatures in north-central states next week while Texas and the Southeast will see hotter than-normal readings April 15-19. Unusually cold March temperatures pushed supplies below the five-year average for the first time since 2011 and prompted Goldman Sachs to increased its price outlook by 17 percent.

“We have a little Friday surprise by Goldman,” said John Woods, president of JJ Woods Associates and a Nymex floor trader in New York. “This market does have the potential to move upward. We have an extended period of cold weather, and it has taken away the surplus we had.”

Natural gas for May delivery rose 17.8 cents to $4.125 per million Btu on the New York Mercantile Exchange, the highest settlement price since August 2, 2011. Volume was more than double the 100-day average at 2:39 p.m.

The futures climbed 2.5 percent this week, the seventh straight weekly increase, the longest such streak since the period ended Oct. 30, 2009. Prices are up 23 percent this year.

Drillers for natural gas in the Fayetteville shale in Arkansas have said they need the price to stay at or above $4 per million Btu to turn a profit. The number of new wells drilled in the state has dropped as a surplus of natural gas forced prices lower.

Price gains accelerated Friday after Baker Hughes Inc. said the number of rigs drilling for natural gas fell to the lowest level since May 1999. The count tumbled 14 this week to 375.

“The cold weather in March means the 2012/13 winter will end up in line with historical averages, despite the mild weather in December,” Johan Spetz, an analyst with Goldman Sachs in New York, said in a report dated Thursday. Spetz raised his estimate for natural gas prices this year by 65 cents to an average $4.40 per million Btu.

The tightening supply and-demand balance means prices will have to move higher in the second half of the year to spur production growth after the summer, he said. “We now expect prices will need to average $4.50 per million Btu in the second half of 2013 to bring on the production growth required to balance the market.”

MDA forecasts show that unusually cold temperatures in parts of the Midwest next week will shift westward by the middle of the month while the eastern half of the lower 48 states heats up.

“You’ve got winter and summer at the same time, which is a natural-gas bull’s dream and a natural-gas bear’s nightmare,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The fact that storage is below the five-year average, you are going to see prices go up.”

U.S. stockpiles fell by 94 billion cubic feet to 1.687 trillion cubic feet during the week ended March 29, bucking the five-year average change for the period of an increase of 4 billion, the Energy Information Administration said.

The next two EIA supply reports may show draw downs in natural gas stockpiles before they begin to build up again, Woods said. Inventories typically start to increase from April through October to prepare for the next heating season, the peak months for U.S. gas consumption.

Spetz sees supplies at the end of October peaking at 3.65 trillion cubic feet, which EIA data shows would be the lowest level for the time of year since 2008.

Business, Pages 27 on 04/06/2013

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