US natural gas futures little changed on steady mild forecasts

US natural gas futures were little changed on Thursday on continuing forecasts for weak heating demand amid unusually mild weather and a storage draw within market expectations. Front-month gas futures on the New York Mercantile Exchange closed up 1.6 cents at $2.181 per million British thermal units. The US Energy Information Administration said US utilities withdrew 53 billion cubic feet (bcf) of gas from storage during the week ended November 27, the first draw since last March.
The market forecast in a Reuters poll was for a draw of 51 bcf. There was an injection of 9 bcf the prior week, a withdrawal of 42 bcf in the same week a year ago and a five-year average draw of 48 bcf. Traders noted that forecasts for continued much warmer-than-normal weather through the middle of December offset an early outlook for slightly reduced production and continued record power sector gas usage.
US production in the lower 48 states was expected to ease to 73.1 billion cubic feet per day on Thursday from 73.5 bcfd on Wednesday, according to an estimate by Thomson Reuters Analytics. With year-earlier production at 73.6 bcfd, this would be the first year-over-year decline in output since October 2013. Traders however noted many early-morning production estimates this year have forecast current production would fall below the prior year, but they have all been wrong as actual output increased later in the day.
The power sector meanwhile has used record amounts of gas to generate electricity this year because the fuel remained relatively cheap compared to coal. Futures for the winter and all of 2016 have been depressed for much of this year, with production at record levels, storage at record highs and forecasts for a warmer-than-normal winter due to the El Ni?o weather pattern. Every futures contract from January 2016 through January 2017 traded at a fresh low on Thursday.
That pushed the calendar 2016 strip to a new low at around $2.41. That compared with an average of $2.68 so far this year and put calendar 2016 on track to fall to the lowest since 1999 when gas averaged $2.27. Calendar 2017 also dipped to a fresh all-time low at around $2.76. Some speculators bet that prices will fall further. Some of the most active options were the $2 January and February puts. Open interest in both was near all-time highs.