U.S. natural gas futures on Friday rose 2% on forecasts for much more cold weather and heating demand later in January than previously expected.
Meteorologists projected the weather in the U.S. Lower 48 states will turn from warmer than normal now to mostly colder than normal from Jan. 16-25. That outlook is much cooler than Thursday’s forecast.
Front-month gas futures for February delivery on the New York Mercantile Exchange were up 4.3 cents, or 2.0%, to $2.209 per million British thermal units (mmBtu) at 8:34 a.m. EST (1334 GMT).
That put the front-month on track to rise about 4% for the week after falling about 1% last week.
Small changes in futures prices over the past few months, cut at-the-money implied volatility , a determinant of option premiums, to 39.0%, its lowest since September. Over the past year, implied volatility has swung wildly, hitting a high of 78.1% in January 2019 and a record low of 18.6% in April.
Traders noted gas prices have dropped about 24% since hitting an eight-month high of $2.905 per mmBtu in early November due to milder-than-usual weather and expectations inventories will remain over the five-year average as near-record production enables utilities to leave more gas in storage, eliminating concerns of shortages and price spikes this winter.
But with colder weather coming, Refinitiv projected average demand in the Lower 48 states, including exports, would jump to 140.4 billion cubic feet per day (bcfd) in two weeks from 117.1 bcfd this week and 116.3 bcfd next week.
Gas flows to liquefied natural gas (LNG) export plants edged up to 8.1 bcfd on Thursday from 7.9 bcfd on Wednesday, according to Refinitiv data. That compares with an average of 8.6 bcfd last week and a record high of 8.8 bcfd on Jan. 4.
Early data from Refinitiv, subject to change later in the day, indicated Cameron LNG’s plant in Louisiana started taking in more gas Friday morning. Officials at Cameron said the plant was operating normally and gas flows would fluctuate following last week’s startup of the second liquefaction train.
Pipeline flows to Mexico, meanwhile, slipped to 5.3 bcfd on Thursday from a four-week high of 5.7 bcfd on Wednesday, according to Refinitiv data. That compares with an average of 4.4 bcfd last week and an all-time daily high of 6.2 bcfd on Sept. 18.
Gas production in the Lower 48 U.S. states eased to 95.2 bcfd on Thursday from 95.4 bcfd on Wednesday, according to Refinitiv. That compares with an average of 95.4 bcfd last week and a record high of 96.8 bcfd on Nov. 30.
Analysts said utilities likely pulled 100 billion cubic feet (bcf) of gas from storage during the week ended Jan. 10. That compares with a decline of 82 bcf during the same week last year and a five-year (2015-19) average reduction of about 184 bcf for the period.
If correct, the decrease for the week ended Jan. 10 would cut stockpiles to 3.048 trillion cubic feet (tcf), 5.5% above the five-year average of 2.890 tcf for this time of year.
In the spot market, power prices for Friday at the Palo Verde hub in the U.S. Desert Southwest fell to their lowest since June for a second time this week amid moderate weather and low demand.