US natural gas futures fell 7 percent on Wednesday after forecasts shifted to warmer weather, cutting short a four-day rally that boosted the price of the heating fuel by more than 25 percent. Also weighing on the market were expectations that US gas stockpiles remained above normal for this time of year and not far from record highs despite a strong draw forecast for last week.
The new front-month gas futures contract on the New York Mercantile Exchange, February, settled down 15.6 cents at $2.214 per million British thermal units. In the past four sessions, NYMEX's front-month contract had risen nearly 50 cents on colder weather across most of the United States after balmy conditions through much of autumn.
Weather forecasts over the past week also indicated the possibility of colder temperatures in the near term that prompted speculators to bet the key winter months of January and February may have larger gas drawdowns too. Those expectations dwindled on Wednesday with the changing weather outlook. MDA Weather Services cited warmer risks in its 6-to-10 day reading.
"The forecast sees a sizeable shift in the warmer direction versus expectations from the previous report, with above normal temperatures being more intense and widespread across the eastern half" of the United States, it said. Thomson Reuters Analytics data showed 458 heating degree days (HDDs) for the next two weeks in the lower 48 US states, versus the norm of 461 for this time of year. Heating degree days, or the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 Celsius), are used to estimate demand to heat homes and businesses. On Tuesday, the HDD reading for the next two weeks stood at 479.
US utilities likely withdrew 57 billion cubic feet (bcf) of natural gas from storage during the week ended December 25, a Reuters survey showed. The anticipated draw, double that seen a year ago, was possibly encouraged by coal-to-gas switching by utilities as gas fell below $2 per mmBtu last week, analysts said. "This has resulted recently in some larger-than-expected storage withdrawals that have been out of synch with HDD accumulations," said Jim Ritterbusch of Chicago-based energy markets consultancy Ritterbusch & Associates. Even then, gas in storage would be around 17 percent higher than a year ago and 14 percent above the five-year average. The US Energy Information Administration will release its gas storage report at 10:30 am EST (1530 GMT) on Thursday.
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