US natural gas futures on Tuesday settled at the lowest level since late November on forecasts for warmer-than-normal weather and light heating demand through the first week of January. Front-month gas futures fell 12.9 cents, or 3.8 percent, to settle at $3.263 per million British thermal units, the lowest close since November 28.
That was the January's contract fourth down day in a row, putting it down about 8 percent since the sell-off began on Thursday. The front-month has had a volatile run over the past several weeks on changes in winter forecasts. It dropped 9 percent last week on warmer forecasts after soaring 43 percent over the prior four weeks on a colder outlook.
The weather changes also had a major impact on the March-April spread. The premium of March over April dropped by over 90 percent from October 13 to November 11, then soared 11 times from its November 11 low to December 9, before collapsing as much as 75 percent over the past seven trading days since December 9. Longer term, weather models project that temperatures will remain around near-normal levels for the rest of the winter, with January a little colder than normal and February and March a little warmer than normal.
Thomson Reuters projected the cold start to this week would boost US gas demand to 112.8 billion cubic feet per day (bcfd), the most since February, from an average of 108.3 bcfd last week, before falling to 95.7 bcfd during the last week of the year when temperatures are expected to moderate. Analysts said utilities likely pulled 203 bcf of gas from storage during the colder-than-normal week ended December 16, the most for that week since at least 1994.
That compares with declines of 147 bcf in the prior week, 33 bcf in the same week a year ago and a five-year average decline of 101 bcf for that week. Analysts forecast the amount of gas in storage would fall below weekly five-year averages by year-end for the first time since May 2015, especially with US production stuck at its lowest level for this time of year since 2013.
US production averaged 70.8 bcfd for the past 30 days, compared with 73.5 bcfd during the same period in 2015, 72.6 bcfd in 2014 and 66.7 bcfd in 2013, according to Reuters data. Output in the past week, however, was down to just 70.1 bcfd due in part to maintenance work and possible freezing wells, according to traders, even though prices in the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia were still near their highest since November 2014.