Natural gas futures plummet as EIA reports smaller-than-expected storage decline

Natural gas plunged by more than 4% on Thursday after the Energy Information Administration reported a thinner-than-projected withdrawal in US natural gas inventories last week. This added to recent bearish sentiment spurred by extended forecasts calling for a broad warm-up in the US around March 10th.

Natural gas for delivery in April fell by 4.30% to $2.739 per million British thermal units by 15:50 GMT, shortly after it declined to a 1-1/2-week low of $2.723. The contract declined by 0.93% yesterday to $2.862, a third straight session of losses. Prices are down 8% so far this week.

The government agency said that US natural gas stockpiles fell by 219 billion cubic feet in the seven days through February 20th, compared to the five-year average drop of 131 bcf, turning surpluses back into deficits. However, analysts had projected a larger decline of around 240 bcf. Stockpiles slid by 117 bcf during the comparable period a year earlier.

Total gas held in US storage amounted to 1.938 trillion cubic feet last week, 1.5% below the five-year average inventory level of 1.968 trillion, compared to a 2.8% surplus a week earlier. The surplus over the year-ago stockpiles of 1.362 trillion cubic feet narrowed to 42.3% from 45.8% the previous week.

Inventories in the East Region fell by 141 billion cubic feet to 843 bcf and were 9.2% below the five-year average, while the West Region saw a net withdrawal of 4 bcf to 371 bcf, a surplus of 22.8% to the average. The Producing Region saw stockpiles decline by 74 bcf to 724 bcf, 1.9% below the average.

Temperatures to moderate

The smaller-than-expected drop in nationwide supplies added to already circling bearish sentiment, fanned by forecasts predicting warmer weather in the second week of March.

According to NatGasWeather.com, natural gas demand in the US will be easing from very high to high through March 4th, with a neutral weather trend for the West over the following seven days, while the central and eastern US remain cool. However, a warm-up is projected around March 9-10th.

The latest polar blast continues its sweep across the central and eastern US, spurring very strong national heating demand as readings decline to 15-30 degrees Fahrenheit below usual over the entire country, apart from the West. Northern Texas will see snow accumulations, while the core of the coldest air situated over the Midwest and Northeast will keep overnight lows in the single digits and below zero throughout Friday.

Late in the weekend and early next week, temperatures over the southern and eastern US will warm up but a new weather system will tap cold Canadian air into the central regions a few days later.

Weather systems carrying rain, snow and below-freezing temperatures will continue to track across the US next week, keeping readings across the central, northern and eastern US slightly below normal. However, weather patterns may see a significant shift around March 9-10th, leading to a warm-up to seasonal or even warmer weather across the entire US, apart from the far North.

Next week’s EIA report is also expected to show a draw well above the average of -115 bcf as last weekend and this week’s cold blasts across the majority of the US are taken into account. EIA data will likely show a decline of 220+ bcf on March 5th, expanding deficits to 100 – 150 bcf. An upcoming moderation in temperatures across large parts of the country, however, will warrant smaller withdrawals to follow, but exactly how small remains unclear.