U.S. natural gas futures fell more than 6% on Thursday, weighed down by forecasts for milder weather and lower heating demand than previously expected and smaller-than-usual storage withdrawal last week.
The U.S. Energy Information Administration (EIA) said utilities pulled 55 billion cubic feet (bcf) of gas from storage during the week ended Dec. 17..
That was close to the 56-bcf decline that analysts had forecast in a Reuters poll and compared with a draw of 147 bcf in the same week last year and a five-year (2016-2020) average decline of 153 bcf.
Last week’s withdrawal reduced stockpiles to 3.362 trillion cubic feet (tcf), or 1% above the five-year average of 3.328 tcf for this time of the year.
Front-month gas futures dropped 24.5 cents, or 6.2%, to settle at $3.731 per million British thermal units (mmBtu). However, for the week, the contract is up 1.1%, after three weeks of decline. Most of the U.S. markets will be closed on Friday, Christmas Eve, which is a holiday this year.
“I think weather and the demand forecast are the big factors weighing on the market,” said John Abeln, an analyst with data provider Refinitiv. “The end of December was already expected to be significantly warmer than usual, but forecasts keep shifting warmer.
“We typically see lower commercial and industrial gas usage around a major holiday like Christmas, but with the warm weather we will also see lower residential loads,” Abeln said.
Refinitiv estimated 400 heating degree days (HDDs) over the next two weeks in the Lower 48 U.S. states, down from the 409 HDDs estimated on Wednesday. The normal is 429 HDDs for this time of year.
HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius).
Refinitiv projected average U.S. gas demand, including exports, would fall from 125.3 billion cubic feet per day this week to 115.3 bcfd next week.
The U.S. price decline also came after gas prices in Europe dropped more than 15% as expectations of the arrival of several liquefied natural (LNG) gas tankers and warmer weather over the next few days helped to offset low exports from Russia.
The amount of gas flowing to U.S. LNG export plants has averaged 11.9 bcfd so far in December, now that the sixth train at Cheniere Energy Inc’s Sabine Pass plant in Louisiana is producing LNG. That compares with 11.4 bcfd in November and a monthly record of 11.5 bcfd in April.
Output in the U.S. Lower 48 has averaged 96.7 billion cubic feet per day (bcfd) so far in December, which would top the monthly record of 96.5 bcfd in November.