NEW YORK: US natural gas futures dropped about 10% on Thursday, erasing much of Wednesday’s gain, on forecasts for less cold weather and lower heating demand this week and next than previously expected.
That price decline came after futures soared over 14% on Wednesday - their biggest one-day gain since 2020 - to a six-week high after forecasts for much colder weather in late January, forcing some speculators to cover their short positions and reminding the market of price spikes seen during last February’s freeze in Texas.
And with the latest forecasts still calling for extreme cold in late January, traders said they expect prices to remain volatile with each change in the weather outlook.
“Heightened price volatility is likely to endure over the next 7-10 days,” analysts at EBW Analytics Group said, noting “short-term fundamental drivers remain supportive with production freeze-offs, strong (liquefied natural gas) feedgas, and upcoming cold blasts.”
The price drop came despite a federal report showing utilities pulled a little more gas from storage last week than expected as colder-than-normal weather boosted heating demand.
The US Energy Information Administration (EIA) said US utilities pulled 179 billion cubic feet (bcf) of gas from storage during the week ended Jan. 7.
That was a bit more than the 173-bcf withdrawal analysts estimated in a Reuters poll and compares with a decline of 134 bcf in the same week last year and a five-year (2017-2021) average decline of 155 bcf.
Last week’s withdrawal cut stockpiles to 3.016 trillion cubic feet (tcf), which is 2.4% over the five-year average of 2.944 tcf for this time of the year.
Front-month gas futures for February delivery fell 49.3 cents, or 10.2%, to $4.364 per million British thermal units (mmBtu) at 10:45 a.m. EDT (1545 GMT). On Wednesday, the contract soared to its highest close since Nov. 26.
During the February 2021 freeze, gas futures climbed - gaining as much as 7% on Feb. 16 - but did not soar like the spot market. Next-day gas prices soared to record highs in several parts of the country - gaining over 1,100% on Feb. 12 at the Waha hub 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 US central states.
In the spot market, next-day power and gas prices for Thursday in New York and New England mostly eased as the weather briefly turns less cold after hitting their highest since January 2018 during a shot of extreme cold earlier in the week. Traders noted, however, that Saturday was now forecast to be the coldest day so far this winter in the Northeast with temperatures only reaching the teens Fahrenheit (about -9 Celsius).