Natural gas touches one-month low on milder US weather outlook

Natural gas declined a fourth day to touch the weakest level in a month as long-term weather forecasting models called for a warm-up in the US during the second week of March, easing natural gas and heating demand.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in April fell by 1.3% to trade at $4.482 per million British thermal units by 08:55 GMT. Natural gas futures hit a session high at $4.553 per mBtu, while day’s low was touched at $4.473 per mBtu, the weakest level since January 22nd.

On February 20, the energy source touched $6.378 per million British thermal units, the strongest level since December 4th 2008 to settle last week 19.9% higher.

Prices have soared 29% so far in 2014, as the US experienced the coldest January in two decades, which boosted demand for the heating fuel and cut stockpiles at the second week of February to a 10-year low for that time of the year. The energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

According to Standard & Poor’s GSCI gauge of 24 commodities, gas futures are the most volatile commodity this year as volatility more than doubled from 31.64% last year to 80.2% in 2014, and are also the second-biggest gainer after coffee.

“The market has sold off on the expectation that the worst is behind us,” said yesterday Teri Viswanath, the director of commodities strategy at BNP Paribas SA in New York, cited by Bloomberg. “This is nothing more than institutional investors taking profits and liquidating their March contract as we approach expiry.”

The March contract expires at the end of today’s trading session. Contract expiration often leads to high volatility in prices as investors either liquidate or relocate their portfolios.

Short-term weather outlook

NatGasWeather.com reported on February 27th that the next reinforcing blast of Arctic air will push into the Great Lakes and into New England today along with a band of light snowfall. Over the Midwest, temperatures are expected to be freezing cold during the weekend, with overnight lows dropping below -15 degrees Fahrenheit, while near zero and single digit readings are projected for the Northeast.

The cold air will probably remain anchored over the northern US, until a strong weather system out of the Southwest warms temperatures into the central US and Mid-Atlantic on Saturday, forcing the extreme cold over the north to weaken. The latter will moderate temperatures and ease natural gas demand for several days, before a probable impressive winter storm brings back much lower-than-normal temperatures over the northern US, Plains and Southeast at the end of the week.

Extended forecast

NatGasWeather.com’s extended forecast for the period ended March 12th called for a strong winter storm to track across the eastern US. While the initial storm will briefly moderate temperatures (for a day or two) over the Mid-Atlantic and portions of the Northeast, the second storm has the potential to develop into a massive storm, bringing heavy rain, thunderstorms and snowfall. The storm may even leave heavy snowfall as it tracks out of the US around March 5th.

Colder-than-normal conditions over the northern US are expected to close out the first week of March, with temperatures 10-25 degrees Fahrenheit lower than average.

However, according to the website a gradual warm-up is expected at the end of the outlook period, which will ease natural gas and heating demand during the second week of March.

US gas inventories levels

The Energy Information Administration reported on Thursday that US natural gas inventories fell by 250 billion cubic feet in the seven days through February 14th, below the median forecast of 257 billion cubic feet, by 16 analysts in a Bloomberg survey. The decline, however, was almost double the five-year average drop of 133 bcf during the comparable week.

Total gas held in US underground storage hubs fell to 1.443 trillion cubic feet, the weakest level for this time of the year since 2004. US gas stockpiles were 40.3% below last year’s amount of 2.418 trillion cubic feet during the comparable week, which is also an all-time high. The deficit to the five-year average widened to a record 33.9%, up from 27.2% a week earlier.

At the same time, on February 24, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a third time to 1 trillion cubic feet, down from 1.2 trillion. The bank previously trimmed its forecast to 1.2 trillion from an earlier estimate of 1.39 trillion cubic feet, while the initial estimate was 1.61 trillion cubic feet.