Natural Gas: The best-performing commodity amid polar cold blast

Bloomberg

A polar blast that’s poised to sweep the US 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 US toward a second-straight annual drop. The prospect of supply constraints has pushed gas up 59 percent in 2016.
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 US 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 jumped the most since 2005 this year.
The February contract slipped 7.8 cents to Friday to settle at $3.724 per million British thermal units on the New York Mercantile Exchange.