By Stephanie Yang

Natural gas prices rose to the highest level in nearly two years Wednesday, bolstered by falling temperatures and expectations for an increase in winter demand.

Futures for January delivery rose 9.5 cents, or 2.6%, to $3.730 a million British thermal units on the New York Mercantile Exchange, trading at the highest level since December 2014.

Prices have taken off in recent weeks as weather forecasts have shown below-average temperatures coming in across the country. Natural gas is used to heat homes, and sees a boost in prices when winter weather drives up demand for heating.

"Weather is driving the bus right now," said Zane Curry, director of markets and research at Mobius Risk Group in Houston. "It's the first legitimate cold we've seen in a December in three years," compared to mild temperatures in the past few December months.

An uptick in demand has also eaten into natural gas storage, which reached a record high last month. However, natural-gas stockpiles remain 0.6% above levels from last year and 6.25% above the five-year average, according to the U.S. Energy Information Administration.

"U.S. natural gas inventories remain historically elevated for this time of year, and will look to challenge the latest rise in prices going forward," said Robbie Fraser, commodity analyst at Schneider Electric.

Should weather forecasts turn warmer, high levels of storage may be cause for concern, and put pressure on natural gas prices, analysts said.

"In the event that weather moderates and we get another period of normal to low-normal demand, then it's going to quickly come back into focus," Mr. Curry said.

Write to Stephanie Yang at stephanie.yang@wsj.com

(END) Dow Jones Newswires

December 07, 2016 10:32 ET (15:32 GMT)

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