U.S. natural gas futures fell nearly 4% on Friday on the upcoming expiration of the front-month contract and forecasts for less cold weather over the next two weeks, while solid gains earlier in the week still led the market to its biggest weekly gain in three.
Front-month gas futures for December delivery fell 28.4 cents, or 3.9%, to settle at $7.024 per million British thermal units, after prices dropped nearly 7% to a session low of $6.80.
“The forecast seems to suggest that even though we are going to see this polar vortex… (traders are) pulling back some of their positions on the anticipation, the cold blast might not be as far reaching as originally feared,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
However, the contract posted its second straight weekly gain of over 11%, having risen to a two-month peak on Wednesday.
“The bullish price action stemmed from concerns over the potential U.S. railroad workers’ strike in early December, which was exacerbated by thin market participation as many traders are out of the market for a long holiday weekend,” analysts at energy consulting firm Gelber & Associates said in a note.
But some “bearish reality is setting in” with a near-term warm-up in temperatures, recent storage data coming in bearish relative to expectations, dry gas production now at parity with record highs and the options expiration for the December gas contract, the note said.
The U.S. Energy Information Administration (EIA) said on Wednesday utilities pulled 80 billion cubic feet (bcf) of gas from storage during the week ended Nov. 18, which was slightly smaller-than-expected.
Meanwhile, British and Dutch gas prices were mixed due to profit taking following recent bullishness and as EU energy ministers failed to agree on a gas price cap and cooler, less windy weather increased demand for heating.
In addition, the market had questions about whether Freeport LNG will be able to restart its liquefied natural gas (LNG) export plant in Texas in mid-December as planned.
Freeport LNG has not yet submitted a full request to the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration (PHMSA) to restart the export plant, according to sources familiar with the company’s filings.
That matters because once the 2.1-billion-cubic-feet-per-day (bcfd) plant restarts it will consume U.S. gas to turn it into LNG for export, boosting demand for gas at the same time that cold winter weather will boost heating demand.