US natural gas futures on Friday fell to their lowest levels since November on forecasts continuing to call for mostly warmer-than-normal weather for the rest of the winter. Front-month gas futures fell 12.4 cents, or 3.9 percent, to settle at $3.063 per million British thermal units, its lowest settle since November 23.
That put the front-month down about 12 percent from a recent high on January 26 and on track to fall about 10 percent this week, its biggest decline since the first week of January. The premium of next-day gas at the Henry Hub benchmark in Louisiana over the Dominion South hub in south-west Pennsylvania in the Marcellus shale fell on Thursday to a near three-month low, putting it within a penny of its lowest in two years. So far, the November-through-March period is on track to be slightly colder than last year's record-warm winter but hotter than the 10- and 30-year averages.
Heating degree days have totaled 2,026 so far this season, versus 1,948 during the same period last winter, a 30-year average of 2,270 and a 10-year average of 2,208, according to Thomson Reuters data. Looking ahead, those warmer-than-normal winter forecasts pushed futures into contango through August with the premiums of April 2017 over March 2017 and March 2018 over March 2017 both rising to their highest since the contracts started trading in 2008.
US gas demand will slide from 100.6 billion cubic feet per day this week to before easing to 99.4 bcfd next week and 98.3 bcfd in two weeks as temperatures moderate, Thomson Reuters projected. Analysts said utilities would likely pull 157 billion cubic feet of gas from storage during the week ended February 3, the most since 2015. That compares with declines of 93 bcf a year earlier and the five-year average of 138 bcf for that week.
Even though storage levels are currently over the five-year average, analysts said they expect inventories to decline faster than usual this year despite weaker power demand, in part because exports are higher and production is lower. After the power sector used a record amount of gas to generate electricity last year, analysts projected it would burn less in 2017 because prices of the fuel are expected to be about 25 percent higher, making coal a cheaper alternative for many generators. US production averaged 70.1 bcfd over the past 30 days, compared with 73.3 bcfd a year earlier and 72.4 bcfd for the same period in 2015, according to Reuters data. US exports, meanwhile, were up to 8.0 bcfd this week from 5.3 bcfd a year earlier. Analysts expect the United States to become a net exporter of gas on an annual basis this year or next for the first time since 1957.
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