US natural gas futures jumped to a seven-month high on Wednesday on forecasts for cooler weather and more heating demand next week than previously expected. At the same time, traders noted, the rate at which production was expected to recover from freezing wells has slowed during a cold snap this week.
Front-month gas futures rose 10.3 cents, or 3.3 percent, to settle at $3.232 per million British thermal units, the highest close since May 26. Earlier in the day, the contract was up as much as 5 percent.
Thomson Reuters analysts on Wednesday boosted their forecast for gas demand in the lower 48 US states for next week to 111.4 billion cubic feet per day from 109.9 bcfd on Tuesday on expectations for cooler weather. That compared with a projected 126.2 bcfd during the colder temperatures this week. Included in the consumption outlook are US exports to Mexico and Canada via pipeline and the rest of the world as liquefied natural gas. US sales abroad are projected to average 9.6 bcfd this week, up 14 percent from a year earlier.
As wells freeze with temperatures dropping across much of the country this week, especially in Texas and the rest of the Gulf Coast, Thomson Reuters projected production in the lower 48 US states would drop to 74.0 bcfd on Wednesday from 74.8 bcfd on Tuesday. Output had been increasing as wells thawed since the start of the year when production fell to 71.1 bcfd on January 1 during a prolonged freeze that cut the amount of gas drillers could pull out of the ground by 8 percent from the record high of 77.6 bcfd on December 18.
Analysts said utilities likely pulled 199 billion cubic feet of gas from storage during the week ended January 12, after removing a record 359 bcf during the prior week ended January 5. That compared with a decline of 230 bcf during the same week a year earlier and a five-year average decrease of 203 bcf.
If correct, the latest decline would cut stockpiles to 2.568 trillion cubic feet, about 13 percent below the 2.946 tcf five-year average for this time of year and the lowest total gas in storage for that week since 2014. Traders, however, said supplies were still adequate to meet heating demand for the rest of the winter, especially if production returns to record highs and the latest weather forecasts for the rest of the season are accurate.
Following the brutal freeze at the start of the year, the National Weather Service has forecast that US temperatures will remain mostly seasonal for the rest of the winter. The weather agency projected heating degree days (HDDs) would total 1,569 in January and February. That compared with just 1,314 HDDs during the same period in the unusually warm winter of 2017 and a 10-year average of 1,598.
HDDs measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius). The measure is used to estimate demand to heat homes and businesses.