A polar blast that’s poised to sweep the U.S. has turned natural gas into the year’s best performer among major commodities.
Frigid weather will sweep the western two-thirds of the nation in the second week of January, stoking gas demand for heating, according to Commodity Weather Group LLC. The deep freeze comes as output from shale basins slows, sending production in the contiguous U.S. toward a second straight annual drop. The prospect of supply constraints has pushed gas up 60% in 2016, the biggest gain among commodities except zinc.
The gas rally marks a dramatic turnaround for a market that tumbled to the lowest prices since the 1990s earlier this year amid a glut of supply. Nine months later, the surplus has disappeared as an arctic chill boosts consumption and the U.S. ships its bounty of shale gas to Mexico and overseas buyers, putting the nation on course to become a net exporter of the fuel for the first time since the 1950s.
“The weather maps are looking so blue that they’re almost black,” said Santiago Diaz, an energy trading associate at FCStone Latin America LLC in Miami. “With temperatures dropping like this, there’s definitely a strong bullish case for natural gas, especially considering the slowdown in production from some of the shale formations.”
While gas is the best performer among major commodities, it’s in the middle of the pack based on a Bloomberg Commodities Index calculation of total returns for investors. That’s due to the high costs of storage and rolling gas futures contracts from one month to another.
Gas futures have jumped the most since 2005 so far this year. The February contract slipped 7.2 cents to $3.73 per million British thermal units early Friday afternoon on the New York Mercantile Exchange.
By Christine Buurma
