US natural gas futures fall to two-week low on warm weather

US natural gas futures fell near 5 percent on Friday to its lowest level in almost two weeks on forecasts for warmer-than-normal weather and light heating demand through late January.
After that, meteorologists forecast temperatures would turn colder than normal for a week starting around January 27. But they forecast the weather in February would be mostly near normal and March would be warmer than normal.
Front-month gas futures fell 16.4 cents, or 4.9 percent, to settle at $3.204 per million British thermal units, its lowest level since January 9. That put the front-month down about 6 percent for the week after it climbed 4 percent last week. Recent warmer-than-normal forecasts also 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 winter weather. A warmer winter lowers March futures.
Overall, however, this winter (November-March) is on track to be colder than last year's record-warm but with higher temperatures than the 10- and 30-year averages.
Heating degree days have totaled 1,709 so far this season, versus 1,595 HDDs during the same period last winter, a 30-year average of 1,903 HDDs and a 10-year average of 1,844 HDDs, according to Thomson Reuters data. Thomson Reuters projected US gas demand would fall from an average of 96.2 billion cubic feet per day this week to 90.5 bcfd next week when the weather is expected to moderate and generators use 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.
In two weeks, however, Thomson Reuters forecast US gas demand would rise to 112.7 bcfd when the weather is expected to turn cold again. Analysts forecast utilities pulled just 99 billion cubic feet of gas from storage during the week ended January 20, the least for that week since 2015 due primarily to light heating demand.
That compared with declines of 202 bcf during the same week a year ago and a five-year average draw of 176 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. US output averaged 70.7 bcfd over the past 30 days, compared with 72.5 bcfd a year earlier and 71.9 bcfd for the same period in 2015, according to Reuters data.