Natural gas declines on milder US weather conditions

Natural gas declined a third day on Monday as long-term weather forecasting models called for moderate temperatures across most of the densely-populated US areas.

On the New York Mercantile Exchange, natural gas for delivery in March fell by 1.58% to trade at $4.865 per million British thermal units by 10:21 GMT. Prices hit a session high at $4.868 per mBtu, while day’s low was touched at $4.813 per mBtu.

Prices soared 17% last month, the largest monthly advance since September 2012, after the energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

Short-term weather outlook

NatGasWeather.com reported on February 2nd that a very active weather pattern will continue to track across the US over the next few days, as fairly strong weather systems are expected to bring areas of moderate to heavy rain and snow. A strong storm will move into the Southern Plains and eastern US Tuesday and Wednesday, bringing thunderstorms along and ahead of the cold front, with areas of heavy snowfall into the colder air over the Midwest and Northeast.

Temperatures will remain again drop below zero and into the single digits over the highest-consumption states of the northern US over the coming week, which will lead to strong natural gas and heating demand. According to the website a cold weather formation will develop late this week on the back side of the strong Tuesday storm and will probably be fairly impressive.

Extended forecast

NatGasWeather.com’s extended forecast for the week ended February 17th called for a very active weather pattern over the US until mid-February. Strong winter storms will track through the central and eastern US, with showers and thunderstorms over the south and areas of moderate to heavy snowfall over the north. Each system will lead to milder conditions into the Midwest and Northeast at times, but just briefly, not longer than a day or two, before cold air returns. According to the website, fairly high natural gas and heating demand for much of the second and probably part of the third week of February can be expected amid the cold weather conditions, although forecasts are still sloppy.

US gas inventories levels

The Energy Information Administration reported on Thursday that US natural gas inventories fell by 230 billion cubic feet in the seven days through January 24th, almost matching the median estimate of 15 analysts surveyed by Bloomberg for a 231-bcf withdrawal. The decline outstripped the five-year average drop of 162 bcf and last year’s 191-bcf decrease during the comparable week.

Total gas held in US underground storage hubs fell to 2.193 trillion cubic feet, 22.5% below last year’s amount of 2.830 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 16.6%, up from 13.2% a week earlier.

According to data by the Energy Department’s statistical arm, supplies have fallen 39% in the past 10 weeks.

At the same time, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a second time to 1.2 trillion cubic feet, from 1.39 trillion. The bank first lowered its forecast to 1.39 trillion from an earlier estimate of 1.61 trillion cubic feet.

According to another report by Mizuho Securities USA Inc., cited by Bloomberg, inventories may drop to 1.1 trillion cubic feet by March 31, which would be the lowest since 2004.