US natural gas futures lost more than 2 percent on Wednesday after the latest midday forecasts called for less cold weather, which would reduce heating demand over the next weeks. Front-month gas futures on the New York Mercantile Exchange closed down 5.8 cents at $2.267 per million British thermal units.
Analysts forecast utilities pulled about 99 billion cubic feet of gas from storage during the week ended January 1. That would be the biggest withdrawal since March, but would fall short of the 116 bcf utilities pulled out of storage during the same week in 2015 and the five-year average of 129 bcf. The US Energy Information Administration will release its storage report at 10:30 am EST on Thursday.
With temperatures near seasonal levels over the last couple of weeks, residential and commercial customers have used near-normal amounts of gas to keep their homes and businesses warm so far this new year. The power sector continued to use record amounts of gas to generate electricity because the fuel remains relatively cheap compared with coal.
Traders noted it makes sense for power generators to burn gas instead of coal so long as the premium of gas over coal, which carries higher environmental and transport costs, is less than $1 per mmBtu. That premium has remained below $1 for 99 days in a row, the most since 2012.
In both 2015 and 2012, storage levels hit record highs during a warmer-than-normal winter with light heating demand, while the power sector consumed record levels of gas as prices for the fuel fell to multi-year lows. In 2015, average prices at the Henry Hub benchmark in Louisiana fell to its lowest level since 1999. The most active options on Wednesday were the $2 March and April puts and the $1.75 March puts, showing that at least some speculators were betting futures would fall over the next few months.
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