U.S. natural gas futures dropped over 10% on Thursday in what has already been an extremely volatile week on a slightly smaller-than-expected storage draw and forecasts for a little less cold and lower heating demand over the next two weeks than previously expected.
The weather, however, was still expected to remain colder than normal through mid February, which caused prices to rocket up almost 16% on Wednesday. That cold has already frozen gas wells, causing U.S. output to drop to its lowest since last February when gas pipes and power plants froze, leaving millions in Texas and other central U.S states without power and heat for days.
The U.S. Energy Information Administration (EIA) said U.S. utilities pulled a massive 268 billion cubic feet (bcf) of gas from storage during the brutally cold week ended Jan. 28, the biggest weekly withdrawal since last year’s February freeze.
That withdrawal, however, was lower than the 277-bcf drop analysts forecast in a Reuters poll and compares with a decline of 183 bcf in the same week last year and a five-year (2017-2021) average decline of 150 bcf.
Last week’s withdrawal cut stockpiles to 2.323 trillion cubic feet (tcf), or 5.8% below the five-year average of 2.466 tcf for this time of the year.
Front-month gas futures for March delivery on the New York Mercantile Exchange (NYMEX) fell 57.3 cents, or 10.4%, to $4.928 per million British thermal units at 10:52 a.m. EST (1552 GMT).
On Wednesday, the contract jumped 15.8% to its highest close since Jan. 27 when it soared 46% and settled at its highest level since December 2008. The NYMEX said Wednesday’s price spike caused the number of futures traded to jump to 851,384 contracts, the highest daily volume since last year’s February freeze.
Icy weather in the central United States caused gas output to drop on Thursday to its lowest in a year in many producing basins, while spot prices jumped in Texas, Louisiana and Chicago to their highest since last year’s February freeze.
Data provider Refinitiv said output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day in December to 92.9 bcfd in January and 91.3 bcfd so far in this month after wells in several regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio.
On a daily basis, preliminary data from Refinitiv showed output on Thursday was on track to drop to 88.2 bcfd, which would be its lowest in a day since last year’s February freeze.
With colder weather expected next week, Refinitiv projected that average U.S. gas demand, including exports, would rise from 135.0 bcfd this week to 136.0 bcfd next week as homes and businesses crank up their heaters. Next week’s forecast, however, was lower than Refinitiv’s outlook on Wednesday.
The amount of gas flowing to U.S. LNG export plants has averaged 12.35 bcfd so far this month, down a little from a monthly record of 12.44 bcfd in January.