Natural gas futures ease off 6-1/2-month highs, investors await EIA’s report

Natural gas retreated after hitting a 6-1/2-month high yesterday as investors awaited the release of the EIAs weekly inventories report due on Thursday. Weather forecasts continued to call for below-average temperatures and heavy snows across much of US.

On the New York Mercantile Exchange, natural gas for delivery in January declined by 0.94% to $4.197 per mBtu by 13:00 GMT. Prices swung between day highs and lows of $4.262 and $4.182 per million British thermal units, respectively. Yesterday, prices touched $4.287 per mBtu, the highest level since May 28th. Natural gas added 4.2% last week, after gaining 8.3% in the previous two 5-day-periods.

NatGasWeather.com forecast the Midwest and Northeast will get hit by three winter systems over the next 6 days. Each system will tap into a fresh dose of cold Canadian air, keeping much of the northern US with below normal temperatures and leading to continued high natural gas demand. Temperatures will continue to warm across the West and South while cold air washes out over the Southeast. A strong winter storm will blast the Northeast this weekend, if two weather systems phase perfectly. Next week, the weather pattern will enter a transition period, temporarily warming temperatures and relieving natural gas demand across much of the US. However, the high natural gas consuming states of the Northeast and Midwest will only see a brief and moderate warming on the 17th-19th before going right back in the freezer around the 20th-21st.

NatGasWeather.com’s extended forecast for the week ending December 24th called for a transition period for the US, as high pressure formation over the southern and central parts of the country will prevent any additional Arctic blasts to develop further than Southern Canada. Parts of the Midwest and Northeast will still experience chilly conditions, while the south will warm considerably from 16th-19th. New cold blasts may probably return on US territory after December 20th, especially across the Midwest and Northeast, which will hold until at least the 25th. This next Arctic outbreak looks like it could be quite cold with temperature anomalies running well over 25°F below normal.

According to AccuWeather.com, the low in Indianapolis on December 15th will be 16 degrees Fahrenheit, or 8 degrees beneath average. The low in Detroit on December 15th will be 10 degrees Fahrenheit, below the average of 25 degrees, while readings in Buffalo will be 13 degrees Fahrenheit, 11 degrees beneath 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.

Last Thursday, the Energy Information Administration reported a larger-than-projected withdrawal in US inventories in the week ended November 29th, signaling robust demand. Stockpiles fell by 162 billion cubic feet, a much larger decline than the projected withdrawal of 146 billion cubic feet, according to the median estimate of 21 analysts surveyed by Bloomberg. Last week’s drop was above the 5-year average decrease of 41 billion cubic.

Total gas held in U.S. underground storage hubs equaled 3.614 trillion cubic feet and were 5.2% below last year’s amount of 3.814 trillion, and 2.8% less than the five-year average.

Market players awaited the release of EIA’s latest US inventories report, due at 15:30 GMT on Thursday. Early withdrawal estimates for this weeks storage data range between a draw of 75 billion cubic feet and 86 billion cubic feet, compared to a withdrawal of 8 billion cubic feet a year ago. The 5-year average change for the week is a 76 billion cubic feet decline.