Yuletide Weather Will Make or Break This U.S. Natural Gas Rally

(Bloomberg) -- U.S. natural gas bulls need more than the promise of a frosty holiday season to sustain this week’s rally -- they need the cold to actually show up.

Gas futures have rebounded from a one-month low on forecasts for an icy blast in the eastern half of the country Dec. 8 to Dec. 11 after a stretch of unusual warmth. But prices for the heating fuel are still well below the five-month high reached earlier in November, signaling that bears aren’t yet ready to beat a retreat. Predictions for weather conditions just a week or two ahead can be fickle, relying on probability and interpretation.

“The market doesn’t really believe we are going to get much” in the way of cold, said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC. “If it is colder than what they expect, then you will see a price reaction for sure -- a good one.”

The U.S. Climate Prediction Center’s outlook issued Monday for Dec. 5-11 underscores this uncertainty: It’s calling for a 50 percent chance of above-normal temperatures across the Northeast, even as private forecasters call for a deep freeze east of the Rockies. The agency never says a particular pattern will definitely take hold, but offers probabilities with the caveat that surprises can and do happen.

One commercial forecaster, meanwhile, said on Tuesday that mid-December weather may be much more frigid than what current outlooks indicate. There are some signs that bone-chilling cold is on the way, but models aren’t showing it yet, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, told clients in a daily note.

Gas futures for December delivery climbed 14.6 cents, or 5 percent, to settle at $3.074 per million British thermal units Tuesday on the New York Mercantile Exchange. Prices capped the biggest one-day gain since Nov. 6.

To contact the reporters on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net, Brian K. Sullivan in Boston at bsullivan10@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Christine Buurma, Jim Efstathiou Jr.

©2017 Bloomberg L.P.