US natural gas futures climb over five percent

US natural gas futures on Tuesday gained over 5 percent, erasing all of Monday's losses, on forecasts for the weather to turn colder than normal in the last week of January. After falling over 5 percent on Monday on warmer weather forecasts for the rest of January, front-month gas futures on Tuesday rose 17.5 cents, or 5.6 percent, to settle at $3.278 per million British thermal units.
That was the front-month's biggest daily percentage gain since December 21. Changes in winter weather forecasts have caused massive swings in futures prices over the past month. The front-month fell 14 percent from December 9 to December 20 on warmer forecasts, rocketed up 23 percent to a two-year high of $3.994 on December 28 on colder forecasts before plunging 22 percent by January 9 on another round of warmer forecasts.
Forecasters at Commodity Weather Group on Tuesday predicted seasonal to below-normal temperatures for the US Midwest, East and South over the next 16 to 30 days with "signs of colder change increasing for the final week of January." Thomson Reuters estimated US gas demand would rise from 101.3 billion cubic feet per day (bcfd) last week to 113.8 bcfd due to the cold weather early this week before sliding to 94.8 bcfd next week when temperatures are expected to moderate. Analysts forecast utilities pulled 140 billion cubic feet of gas from storage during the warmer-than-normal week ended January 6, the smallest draw for that week since 2012.
That compares with declines of 49 bcf in the prior week, 152 bcf a year earlier and a five-year average draw of 168 bcf for the week. If the forecasts are correct, it would be the second week in a row when withdrawals were below both year-ago and five-year averages due to warmer-than-normal weather and weaker demand for gas from the power sector.
The power sector has consumed less of the fuel over the past month because the cost of next-day gas at the Henry Hub benchmark in Louisiana was about 25 percent higher now than the same time last year, making coal a cheaper fuel for many generators to burn to produce electricity.
Despite the small expected draw, analysts estimated the amount of gas in storage would decline more quickly than normal this winter in part because drillers were producing less of the fuel than in recent years. US output averaged 70.7 bcfd over the past 30 days, compared with 72.2 bcfd a year earlier and 71.7 bcfd for the same period in 2015, according to Reuters data.