Natural gas spikes as supplies plummet

The price of natural gas futures climbed to a two-year high today after the US Energy Department reported a record decline in inventories last week.

The Energy Information Administration, the statistical arm of the US Energy Department, said today that natural gas in storage dropped 285 billion cubic feet (bcf) last week to 3.248 trillion. This was the largest weekly fall ever recorded, eclipsing the 274 bcf reported back in January 2008, and comes a week after a decline of 81 bcf.

By mid-afternoon in New York, natural gas futures for January were up 4.8% at $4.460/ BTU, after earlier hitting $4.471, the highest price seen since July 2011. This is just the latest in a series of rises in the price of natural gas this year, with the commodity having advanced more than 30% in 2013 so far.

The draw in natural gas supplies was bigger than expected, and comes as a consequence of the extremely cold weather North America has been experiencing in recent weeks (around half of all US households use gas for heating). As we are in the winter heating season, we would normally expect heating supplies to draw down, but the average drop over the last five years for this period is 133 bcf, which illustrates just how big last week’s drop is. It would appear that output is unable to keep up with demand while the extreme cold weather persists.

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