Natural gas rebounds from the largest one-day drop since May on US weather outlook

Natural gas advanced, rebounding from the biggest daily decline since May, as short-term weather forecasting models called for freezing cold weather conditions over most of the densely populated US areas. Chilly temperatures boost natural gas demand, as Americans crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in March surged by 2.86% to trade at $4.808 per million British thermal units by 08:55 GMT. Prices hit a session high at $4.809 per mBtu, while day’s low was touched at $4.691 per mBtu. Yesterday, the energy source settled 6.5% lower, marking the biggest one-day drop since May 2nd.

On January 24th, prices touched $5.245 per mBtu, the strongest level since February 18th 2010 and settled the week 20.4% higher, the biggest weekly advance since October 2010. Prices settled last year 26% higher, the best performance since 2005 and second straight annual advance.

Short-term weather outlook

NatGasWeather.com reported on January 28th that the last Arctic blast in the series continues to move through the central and eastern US. Temperatures over the the northern US states, which are the highest-consumption states are expected to again drop below zero, which will lead to very strong natural gas and energy demand.

Single digits and teens will push deep into the South and Southeast over the coming nights. The cold outbreak will be accompanied by some rare snowfall, ice and freezing rain in the Gulf of Mexico, which may lead a wintry power load mess.However, the worst outbreak is expected to occur today and Wednesday, just before a major pattern change begins to evolve.

On Thursday through Saturday, a more zonal jet stream will set up, leading to gradually warmer temperatures, near or above normal across much of the central and eastern US. The pattern will be connected with the development of numerous strong weather systems. The first one may push through the northern Rockies on Saturday, before tracking across the Midwest and Northeast, bringing areas of rain and snow. The initial system will be followed by more impressive cyclones early next week, which have the potential to significantly warm temperatures as they push into the Northeast coast, along with areas of very heavy rain and thunderstorms to the south and accumulating snowfall and ice into the colder air over the north.

According to AccuWeather.com, temperatures in Cleveland on January 31st may bottom at 15 degrees Fahrenheit, 10 beneath average, while readings in Detroit may bottom at 9 degrees Fahrenheit, 11 degrees below average. Temperatures in Chicago are expected to hit 7 degrees Fahrenheit, 12 below normal.

When cold weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of U.S. electricity generation. Above-average readings in the winter season have the opposite effect. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

Milder long-term weather forecast

The long-term weather forecasting models called for overall milder condition over much of the US. NatGasWeather.com’s extended forecast for the week ended February 12th, called for a very active weather pattern to take place during the observed period. Impressive cyclones, will bring a ridge of high pressure formations, which will push into the Mid-Atlantic and the Northeast coast with temperatures warming into 40s and 50s, locally 60s. However, the milder temperatures may be accompanied by heavy rainfall.

This will lead to lower natural gas demand over much of the South, Southeast and Mid-Atlantic, but it will maintain high demand over the northern US, although not as intensive compared to the recent cold. Heavy snowfall or ice may occur in the cold air over the Great Lakes and New England around February 6-8th, with potentially hefty accumulations.

US gas inventories levels

The Energy Information Administration reported on Thursday that US gas supplies fell by 107 billion cubic feet in the week ended January 17th, which was higher than the median analyst’ forecast for a net withdrawal of 103 bcf. Last week, US gas supplies dropped by 287 billion cubic feet, the largest decline on record.

Total gas held in underground storage hubs equaled 2.423 trillion cubic feet as of January 17th, 19.8% below last year’s 3.021 trillion stored. The deficit to the five-year average narrowed to 13.2% from previous week’s record 14.9%.

Inventories in the East Region fell by 67 bcf to 1.187 trillion and were 17.6% below the five-year average of 1.440 trillion cubic feet. The West Region received a net draw of 15 bcf to 349 bcf, 10.5% below the average. Stockpiles in the Producing Region slid by 25 billion cubic feet and reached 887 bcf, 7.8% beneath the five-year average of 962 billion cubic feet.

According to data by the Energy Department’s statistical arm, supplies have fallen 37% in the past 10 weeks. Jose Villar, an analyst with the U.S. Energy Information Administration, said, cited by Bloomberg: “Gas inventories dropped by 1.386 trillion cubic feet to 2.423 trillion from Oct. 31 through Jan. 17; the drop was 50 percent more than the five-year average decline of 927 billion and the fastest pace of withdrawals on record for the period.”

Meanwhile, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast to 1.39 trillion cubic feet from an earlier estimate of 1.61 trillion cubic feet.