US natural gas futures on Friday edged up before the US Martin Luther King Jr. Day holiday on Monday on forecasts calling for colder weather and higher heating demand in late January and February.
Friday will end this week's rollercoaster ride for the front-month. The contract fell 5 percent on Monday on warmer forecasts, rose 5 percent on Tuesday on colder forecasts and eased near 2 percent on Wednesday before soaring 5 percent again on Thursday on cooler forecasts and a big storage draw.
Utilities pulled 151 billion cubic feet of gas from storage during the week ended January 6, topping analysts estimates for a draw of 144 bcf in a Reuters poll. For the week ended January 13, analysts forecast stockpiles will fall by 194 bcf, topping the 170 bcf decline seen during the same week a year ago and the five-year average draw of 175 for that week.
Front-month gas futures rose 3.3 cents, or 1 percent, to settle at $3.419 per million British thermal units. That put the front month on track to rise about 4 percent this week after falling 12 percent last week, its biggest weekly loss in nearly a year. The sharp price moves this week continued a trend of big changes over the past few weeks when the front-month fell 22 percent by January 9 after hitting a two-year high of $3.994 on December 28.
Commodity Weather Group forecast temperatures would drop to below normal levels in late January and February in the US Midwest, East and South. Other meteorologists, however, continued to project temperatures would remain warmer-than-normal for the rest of January, February and March, making this winter (November-March) warmer than both the 10- and 30-year averages, but cooler than last year's record warm.
Thomson Reuters estimated US gas demand would fall to 91.2 billion cubic feet per day next week and 90.3 bcfd in two weeks as the weather moderates from an average of 111.9 bcfd this week.
Much of that expected demand decline comes from the power sector. After using a record amount of gas to generate electricity in 2016, analysts project the power sector will use less of the fuel in 2017 because they forecast gas prices would be about 25 percent higher this year than last, making coal a cheaper fuel for many generators.
Gas prices at the Henry Hub benchmark in Louisiana averaged $2.49 per mmBtu in 2016, their lowest since 1999. US output averaged 70.6 bcfd over the past 30 days, compared with 72.5 bcfd a year earlier and 72.0 bcfd for the same period in 2015, according to Reuters data. Energy data provider Genscape said part of the recent production decline was due to freeze-offs, which it said peaked at about 2.2 bcfd on January 7 as a winter storm moved from the west to the south and northeast last week.
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