(John Kemp is a Reuters market analyst. The views expressed are his own)
* Chartbook: tmsnrt.rs/2QHeLqG
By John Kemp
LONDON, Nov 14 (Reuters) - U.S. natural gas prices have leapt to the highest level for more than four years as the market tries to conserve scarce gas stocks in the face of unusually cold weather settling across much of the country.
Futures prices for gas delivered at Henry Hub in January 2019 have surged to more than $4.50 per million British thermal units, up from just $3.28 at the start of the month, and the highest since July 2014.
Gas stocks are at the lowest seasonal level for 15 years and around 15-16 percent lower than at the same point last year and the five-year average, according to data from the U.S. Energy Information Administration.
While most forecasters have been predicting a relatively mild winter across the northern United States because of the El Niño developing over the Pacific, temperatures have recently fallen far below the seasonal average.
Until the end of the first week in November, temperatures had been slightly milder than the long-run average and in line with the start of winter in 2015, 2016 and 2017.
Since then, however, temperatures have plunged well below normal across most of the lower 48 states pushing cumulative heating demand up sharply (tmsnrt.rs/2QHeLqG).
Colder than average weather is expected to persist across most northern and eastern population centres for the next week according to the U.S. government’s Climate Prediction Center.
If the forecast is correct, this will be the first colder than average start for over three years and increase the pressure on already-stretched gas supplies.
The confluence of unusually cold weather with very low gas stocks has sent near-term gas prices surging as the market tries to limit consumption as much as possible.
Rising prices should encourage gas-fired power producers to limit the number of hours they run in the next few weeks to conserve stocks, while price differentials should result in maximum switching to coal generation.
If benchmark gas prices rise high enough, they could also discourage LNG exports.
But low inventories have left the market very vulnerable with price spikes likely to recur later in the winter to cope with any extended periods of cold weather.
As a result, hedge fund managers have a clear bullish bias on prices this winter, with long positions still outnumbering short ones by a ratio of more than 4:1 last week, only slightly below the multi-year peak of 5:1 set in mid-October.
- U.S. natural gas prices surge on cold weather forecast (Reuters, Nov. 6)
- Low U.S. gas market stocks tempered by mild El Niño forecast (Reuters, Oct. 19)
- U.S. power producers coal consumption falls to 35-year low (Reuters, Sept. 26) (Editing by David Evans)