A polar blast has heated up which are up more than 13 percent in the past week on strengthening demand and the outlook for more cold weather.
Bitter cold weather across the northern tier of the U.S. expanded to the East Coast this week, and it is expected to remain frigid into early January.
"This is a substantial strengthening in the heating demand outlook. The cold weather system that was supposed to be limited to the northern Midwest has spread to the eastern part of the country," said John Kilduff, partner at Again Capital.
Natural gas futures for February were trading at $2.94 per million British thermal units, an increase of 7.4 percent on Thursday and more than 13 percent from a week ago. Recently, prices were as low as $2.56 last Thursday, close to the low of $2.522 of last February.
The U.S. has an abundant supply of natural gas, and warmer winter weather has kept prices depressed. Prices were higher Thursday morning but gained more momentum after the government reported a withdraw last week of 112 billion cubic feet of gas from storage, the second week of a triple digit withdraw.
Natural gas has been volatile within a relatively low range, and futures were trading as high as $3.22 a month ago. But winter weather failed to materialize until just recently, and now the outlook is for even colder weather.
"Now, we are seeing risks that some of the strongest cold could come again between Jan. 4 and 6 before gradually moving out," according to Jacob Meisel, chief weather analyst at Bespoke Weather. He said there's potential for a warmer period in mid-January, with the coldest period expected Jan. 4 to 6.
Model forecast for seven days through Jan. 5
Source: Bespoke Weather, Pennsylvania State University
"We're rallying because the warmup has been pushed back. ... This move is almost entirely weather driven," Meisel said, adding that U.S. production is at record highs and inventories are just below the five-year average.
Meisel said natural gas bears believe the record U.S. production will continue to mean abundant supplies, but bulls are hoping the drawdown of some supply from storage will pressure prices.
"What the market is all worried about is how much gas we have in storage in March," said Meisel. "The question is are we going to have a gas shortage by the end of the winter if this cold sticks around. It's been a wild few weeks in the natural gas market."
He said the next level to watch would be the $2.98 to $3.02 range.
"Weather modeling has been difficult because of La Nina," said Kilduff, adding that January until just recently had been expected to be warmer.
Source: Bespoke Weather
* Forecast for Gas Weighted Degree Day (GWDD) projects the amount of weather-driven demand.