U.S. natural gas futures plunged more than 10% to a three-month low on Monday, weighed down by forecasts for warmer-than-usual weather in early January that could result in lower heating demand.
One day ahead of the expiry date, Front-month gas futures declined 24.1 cents, or 9.6%, to $2.267 per million British thermal units by 10:33 a.m. EST (1533 GMT). Prices earlier dropped to their lowest since Sept. 25 at $2.238.
“Technically gas prices declined sharply after Christmas due to profit taking, and it’s fundamentally driven by the short-term warmer-than-normal weather forecasts. Our storage models project some significantly lower gas drawdowns to be reported for the next several weeks if the weather forecast is to be realized,” said Zhen Zhu, economist at Oklahoma City-based C.H. Guernsey.
Data provider Refinitiv estimated 387 heating degree days (HDDs) over the next two weeks in the Lower 48 U.S. states, below the 30-year average of 460. 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.
With warmer weather coming, Refinitiv projected average demand, including exports, would slip from 123.9 billion cubic feet per day this week to 120.4 bcfd next week.
The amount of gas flowing to U.S. LNG export plants, meanwhile, has averaged 10.7 bcfd so far in December, which would top November’s 9.8 bcfd record as a supply crunch Europe and Asia in recent months have prompted global buyers to purchase more U.S. gas.
“Any strong bullish arguments for the market have been thwarted with a further extension of normal/mild temperature views through the first third of January,” advisory firm Ritterbusch and Associates said in a note.
“The fact that nearby values are collapsing to the lowest level since the beginning of October despite an ongoing sharp contraction in the supply surplus attests to the mounting importance of the short term 1-2 week temperature views with the market now entering the heart of the heavy usage cycle.”
Output in the Lower 48 U.S. states has averaged 91.1 billion bcfd so far in December. That matches with a seven-month high of 91.1 bcfd in November 2020 and an all-time monthly high of 95.4 bcfd in November 2019.