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NEW YORK--Natural gas prices neared their largest one-day gains since June as forecasts for a November chill had buyers rushing into the market for the heating fuel.

NEW YORK--Natural gas prices neared their largest one-day gains since June as forecasts for a November chill had buyers rushing into the market for the heating fuel.

Natural gas for December delivery is up 14.7 cents, or 3.8%, at $4.02 a million British thermal units on the New York Mercantile Exchange. A five-day rally has pushed natural gas above $4/mmBtu for the first time since Oct. 3.

It had traded as high as $4.065/mmBtu with gains greater than 4% on the day. Gains have only been over 4% on one day since mid-June.

Nearly all of the gains came as soon as off-hours trading opened Sunday evening. Traders reacted to updated weather forecasts showing unseasonably cold weather spreading over the eastern half of the country by the end of the week. Temperatures at times may drop to nearly 10-degrees-Fahrenheit below normal in some of the biggest consumer markets--Chicago, Dallas, Houston, Washington and Cincinnati.

"This blast of cold weather caught everybody by surprise to a degree, in its severity," said John Kilduff, founding partner of Again Capital in New York, which invests in energy commodities. "This is precisely what the market has been setting up for, to jump all over any early-season cold."

Record production from the unconventional drilling boom had dropped gas prices as low as $3.541/mmBtu just a week ago. Demand had been tepid, too, after a mild summer and comfortable October. With stockpiles refilling at a record pace this year, investors in the last two weeks had just started to bet more on falling prices than on rising prices for the first time in nearly a year.

That oversupply situation will help slow rising prices, but last week's low now appears to be the market's bottom, Mr. Kilduff said. Many traders and forecasters, including the U.S. Energy Information Administration, had expected prices to start rising in November and stay back above $4/mmBtu as the winter cold appears.

Buyers looking for that rise moved so aggressively in part to force short-sellers--the traders who are betting that prices would fall--to capitulate, said Scott Gettleman, an independent trader in New York. Short-sellers may have to buy back in and close out their bets if a strong rise in prices puts them in a no-win position, and that gives people who bet on rising prices a chance to cash in.

"Once they know they have the shorts they try to run," Mr. Gettleman said. "If another [cold] weather report comes out later this week they're going to slam this market so hard."

Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $3.635/mmBtu, compared with Friday's range of $3.60-$3.99. Cash prices at the Transco Z6 hub in New York last traded at $2.63/mmBtu, compared with Friday's range of $2.60 to $3.00.

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Copyright:
the wall street journal
Published on:
November 3, 2014
Source url:
http://online.wsj.com/article/BT-CO-20141103-706486.html
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