U.S. natural gas futures fell over 5% to a two-week low on Thursday on forecasts for less cold and lower heating demand over the next two weeks than previously expected.
That price decline came ahead of a federal report expected to show last week’s storage withdrawal was bigger than usual and despite a drop in U.S. gas output to its lowest in four months as a cold snap causes well freeze-offs in Texas and several other producing states.
Even though the latest forecast called for less cold for the rest of January, traders noted the weather would still remain colder than normal this week and next and daily U.S. gas demand will likely reach a record high on Friday.
That cold serves as a reminder of the last time gas demand was expected to reach record highs before last winter’s February freeze.
Analysts forecast U.S. utilities pulled 194 billion cubic feet (bcf) of gas from storage during the week ended Jan. 14. That compares with a decline of 179 bcf in the same week last year and a five-year (2017-2021) average decline of 167 bcf. EIA/GASNGAS/POLL
If correct, last week’s withdrawal would reduce stockpiles to 2.822 trillion cubic feet (tcf), which would be 1.6% over the five-year average of 2.777 tcf for this time of the year.
Analysts expect the cold will boost heating demand and force utilities to withdraw massive amounts of gas from storage over the next few weeks, causing overall inventories to slip below the five-year average for the first time since mid-December.
Front-month gas futures NGc1 fell 20.5 cents, or 5.1%, to $3.826 per million British thermal units at 10:04 a.m. EST (1504 GMT), putting the contract on track for its lowest close since Jan. 6.
Last winter, next-day gas jumped to record highs in several parts of the country — gaining over 1,100% on Feb. 12 at the Waha hub NG-WAH-WTX-SNL in West Texas — as a winter storm left millions without power and heat for days after freezing gas wells and pipes in Texas and other U.S. central states.
In the current spot market, frigid weather and high heating demand in the U.S. Northeast kept next-day power and gas prices in New York and New England at or near their highest since January 2018 for much of the past week. Traders noted more cold was expected later this week and next.
Thursday’s cold snap put U.S. gas production on track to drop to its lowest since September after lingering cold since New Year’s Day has already depressed output through well freeze-offs and other weather-related equipment issues in several regions, including the Permian in Texas and New Mexico, the Bakken in North Dakota and Appalachia in Pennsylvania, West Virginia and Ohio.
Data provider Refinitiv said output in the U.S. Lower 48 states averaged 94.4 billion cubic feet per day (bcfd) so far in January, down from a record 97.6 bcfd in December.
On a daily basis, Refinitiv projected total U.S. gas demand plus exports would reach 151.1 bcfd on Jan. 21, which would top the 150.0 bcfd high seen so far this year on Jan. 7 and the current record of 150.6 bcfd on Jan. 30, 2019. The outlook for Friday was lower than Refinitiv projected on Wednesday.
Source: Reuters (Reporting by Scott DiSavino; editing by Jonathan Oatis and Nick Zieminski)