US natural gas futures hit one-week low on warmer weather

US natural gas futures slipped over three percent to hit a one-week low on Wednesday as forecasts for warmer weather for much of the rest of the winter offset expectations for colder temperatures at the end of January.
Front-month gas futures for February delivery on the New York Mercantile Exchange were down 11 cents, or 3.2 percent, to settle at $3.302 per million British thermal units. Prices touched a session low of $3.282, a bottom since January 11. Meteorologists said weather would remain mostly warmer than normal over the next 10 days or so before turning colder than usual starting around January 28. They said February and March would be mostly warmer than normal, however.
November through March is on track to be colder than last year's record-warm winter but with higher temperatures than the 10- and 30-year averages. Heating degree days have totaled 1,670 so far this season, versus 1,522 HDDs during the same period last winter, a 30-year average of 1,816 HDDs and a 10-year average of 1,760 HDDs, according to Thomson Reuters data.
The warmer forecasts helped push the March-April 2017 spread into contango this week, with April now the premium future for the first time since the contracts started trading in 2008. Traders use March as a proxy for the winter weather. A warmer winter lowers March futures.
"This week's main bearish driver has been some continued comparatively mild temperature forecasts that now stretch to the end of this month," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
Thomson Reuters projected US gas demand would fall from an average of 112.0 billion cubic feet per day last week to 96.0 bcfd this week and 88.1 bcfd next week as the weather moderates and the power sector uses less of the fuel.
After using a record amount of gas to generate electricity in 2016, analysts project the power sector would use less in 2017 because prices of the fuel are expected to be about 25 percent higher this year than last, making coal a cheaper alternative for many generators.
Analysts estimate utilities pulled 231 billion cubic feet of gas from storage during the week ended on January 13, the most for that week since 2014, according to a Reuters poll. That would top both the 175-bcf decline of a year earlier and the five-year average draw of 170 bcf for that week. Analysts said they expected the amount of gas in storage to decline faster than normal this year, in part because exports are higher and production is lower.