Freezing Temperatures Raise Natural Gas Prices But Markets Are Eyeing A Thaw
A polar vortex has descended on much of North America, coming down from the Arctic, bringing record freezing temperatures across much of the country.A polar vortex has descended upon the continental U.S. this week, bringing with it arctic-like gusts and record low temperatures that have many Americans cranking the thermostat as high as it can go. Yet despite a new report that shows how frigid weather can push natural gas prices higher, futures of the commodity were fluctuating Tuesday afternoon in anticipation of a thaw later in the week.
Cold weather in December (which seems less cold after Tuesday's 'real feel' temperatures dipped into the negatives in many parts of the country) had a significant effect on the price of natural gas, said the U.S. Energy Information Association on Tuesday. In a new energy price outlook report, the organization said that cold weather led to a withdrawal of 285 billion cubic feet of gas for the week ending December 13, which it said was the largest storage withdrawal since record-keeping began in 1994. As a result, the Henry Hub benchmark averaged 60 cents (per British thermal unit, or MMBtu) higher than the previous month.
Despite an increase in usage in 2013 - and despite the polar vortex - the EIA is projecting that natural gas usage will fall by 2.2%, or 1.6 billion cubic feet per day, in 2014 'because of the forecast 4.6% decline in heating degree days and lower natural gas use by the electric power sector.' The EIA also reported that natural gas futures (for April 2014) are up year-over-year, averaging $4.19 per MMBtu compared to April 2013′s $3.38 per MMBtu.
However, February 2014 natural gas futures fluctuated in Tuesday trading as weather forecasts projected warmer - and even above-average - temperatures to come later this week. The commodity slipped 0.14% Tuesday afternoon, trading for roughly $4.30 per MMBtu before recovering its losses and trading for a 0.37% gain near the approach of the closing bell. Natural gas stocks were equally mixed, with Natural Gas Services taking a 0.99% dip and Consol trading for a 1.5% loss but Cabot Oil & Gas finishing the day with a 1.78% gain and EOG Resources ending Tuesday trading 1.7% up.
Among the other predictions within the EIA's short-term outlook report was a bit of good news for consumers: the annual average regular gas retail price, which was $3.51 per gallon in 2013, is expected to fall to $3.46 per gallon in 2014 and to an even cheaper $3.39 per gallon in 2015. Oil prices hit a $3.68 per gallon high on July 22, 2013, thanks in part to supply disruptions in Libya that month and the uncertainty of military conflict in Syria in the last half of August. However, the EIA said that as geopolitical issues subsided, crude prices stabilized, which is a trend that should continue in 2014.
'Despite recent price increases, we expect that high levels of refinery runs, lower crude oil prices, and strong export demand for diesel fuel will contribute to downward pressure on regular gasoline retail prices, which we expect to average $3.29 per gallon during January 2014,' the EIA wrote.
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