Natural gas prices hit 2-month low as U.S. heating demand data disappoints

By Barani Krishnan

Investing.com - Bone-chilling temperatures are coming up for the United States but not fast enough for bulls on the natural gas market, who suffered another mark down in prices of the fuel on Thursday after disappointing data on heating demand.

The U.S. Energy Information Administration, or EIA, reported that utilities across America drew 87 billion cubic feet, or bcf, from natural gas storage for the week ending Dec. 16 versus market expectations for a draw of 93 bcf.

“Even though a major Polar blast will dominate much of the US over the next few days and usher in wind chills to nearly 0 degrees (Fahrenheit) in far southern locations such as Houston, Texas, the [pre-] warm-up appeared to be more of a driver than the bitter cold event,” Gelber & Associates, a Houston-based energy markets consultancy, said in a note to its clients.

Natural gas for January delivery on the New York Mercantile Exchange’s Henry Hub was down 7.6 cents, or 1.4%, to $5.256 per million metric British thermal units, or mmBtu, by 11:00 ET (16:00 GMT). It earlier hit a session low of $5.187 per mmBtu - marking a bottom not seen since Oct. 25.

Gas futures are down 22% for all of December, with 20% of that loss coming in this week alone.

For the past four weeks combined, the drop has been more than 30%. Prior to that, the market rose almost 20% in the mid-to-late November period on expectations that all of the United States will be in a freezing state during the Christmas week leading into the new year.

The Global Forecast System, the weather forecasting model preferred for the United States, and the ECMWF — the default version used for Europe — are indicating moderating temperatures from the start of next week that could linger into the first week of January. That is opposed to the super cold temperatures the two models initially called for from this Friday through the year-end.

“This is one of the most whimsical periods for year-end weather forecasting that I’ve seen in years,” said John Kilduff, partner at New York energy hedge fund Again Capital. “It explains the sort of whipsaw volatility we’ve had over the past month.”

Gelber & Associates concurred with Kilduff, saying:

“Because the longer-range weather forecast models point to another major Arctic outbreak during the second week of January, it seems that upside potential outweighs further downside risk.”

“Until the gas market is presented with some new bullish price-setting mechanisms, more topsy-turvy price action will likely continue for the next week through the New Year’s holiday as overall market participation will be thin, which may open the door to wildly swinging prices.”

Dry gas production also needs to decline significantly to sustain an elongated rally in gas, the consultancy added.

Output-wise, dry gas volumes remain near 99 bcf per day — off from a November peak of around 102 bcf/d — with additional losses likely to emerge from widespread freezing of production wells. That said, output as a whole is still up about 1.5 bcf/d year-over-year, making traders reluctant to support a rally in gas at this moment.