Cold Weather and Supply Decline Send Natural Gas to 2-year High

Natural gas futures dropped due to profit-taking on Thursday after having surged to the highest price in two years yesterday. The rally came amid expectations over a tightening market.

The January natural gas futures contract, which expired Wednesday, gained 4.5 percent to reach the highest since December 2014 at $3.990 per million British thermal units before settling at $3.930 per mBtu. The new front-month contract for February also soared sharply.

While latest weather forecasts showed a blast of cold air next month which will help boost demand, investors are expecting data from the Energy Information Administration due later today will indicate a big drawdown in supply last week. Economists anticipated natural gas storage in the U.S. to contract by about 220 billion cubic feet of gas for the week ended Dec. 23.

If confirmed, gas in storage would reach 3.375 trillion cubic feet, which would be more than 10 percent below last year’s level.

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