NEW YORK Jan 29 U.S. natural gas futures rose more than 10 percent on Wednesday, the biggest daily gain in 18 months as volatility continued to rock the market ahead of the February contract expiration.
Front-month futures surged above $5.55 per million British thermal units, a four-year high, in part due to short covering and as continuing cold weather across the nation boosted heating demand.
March futures also rose more than 10 percent, but remained below February -- a further sign that February futures were in high demand by traders covering short positions, said Dominick Chirichella, an analyst at Energy Management Institute
"There hasn't been any change in the weather forecasts from yesterday afternoon to today's close. I believe this is a technical move," said Chirichella. "Some people got caught short before the expiration."
Market watchers attributed some of the run-up in near-month natural gas prices to some investors possibly being forced to liquidate positions. Betting on March's price against April is a popular trade among hedge funds and the spread blew out to nearly $1 from 54 cents on Tuesday.
Temperatures far below normal have plagued Midwest and eastern U.S. this winter, drawing unusually high levels of natural gas from storage to be used as fuel for heat.
Private forecaster Commodity Weather Group expects frigid temperatures in much of the country over the next two weeks.
Front-month natural gas futures on the New York Mercantile Exchange closed up 52.4 cents, or 10.41 percent, at $5.557.
The February contract rose 31 percent since the beginning of January, the largest one-month gain for a front-month contract since September 2009.
In the ICE cash market, trades for gas to be delivered Thursday at Henry Hub , the benchmark supply point in Louisiana, closed down 3 cents at $5.20. Late trades were at a 35-cent discount to NYMEX, reversing course from a 20-cent premium Tuesday.
Gas on New York's Transco Zone 6 pipeline fell $15.54 to $14.66 the region's near term forecast turned warmer.
Front-month futures have been extremely volatile over the past week, gaining more than 10 percent on Friday and falling more than 5 percent on Monday.
Implied volatility over the last 30 days reached 83 on Friday, the highest since September 2009. On Tuesday, it fell to 73, still within levels not seen since 2009.
Storage withdrawals for the week ended Jan. 24 are expected to be between 220 billion and 280 billion cubic feet, according to analysts polled by Reuters. The U.S. Energy Information Administration will release the data on Thursday.
Nuclear plant outages, which create a draw on natural gas as a substitute power source, were at about 2,500 megawatts, down slightly from 2,600 MW on Tuesday. That compares with 7,600 MW out a year ago and a five-year average outage rate of 5,600 MW.