Having hit the strongest level in 7-1/2 months, natural gas erased daily advances on Friday, as investors locked in gains. On Thursday, an EIA report showed US inventories fell below expectations last week. However, natural gas remained supported as weather forecasts continued to call for bellow-normal temperatures across most of the densely-populated US areas.
On the New York Mercantile Exchange, natural gas for delivery in January hit $4.442 per mBtu at 15:45 GMT, the strongest level since May 1st. The energy source settled at $4.395 per mBtu, losing 0.33% for the day. Prices swung between daily highs and lows of $4.442 and $4.341 per million British thermal units. The energy source snapped five consecutive days of advances, but added 6.5% for the week, after gaining 16% in the previous five weeks.
During the first three days of the week, natural gas was supported by chilly weather forecasts and prices surged by a 4.4%.
On Thursday, prices touched 7-1/2 month fresh highs ahead of EIAs report which was projected to show a larger-than-average withdrawal in US inventories last week.
However, the Energy Information Administration reported that US gas inventories fell by 81 billion cubic feet in the week ended December 6, trailing expectations for an 85 billion decline according to the median estimate of 25 analysts surveyed by Bloomberg. However, the withdrawal was well above last year’s 8 billion decline during the comparable period and also exceeded the five-year average drop of 76 billion cubic feet.
Total gas held in U.S. underground storage hubs equaled 3.533 trillion cubic feet as of Friday December 6th. Stockpiles were 273 billion cubic feet, or 7.2%, less compared to the same week a year ago and 109 billion cubic, or 3.0% feet less than the 5-year average of 3.642 trillion cubic feet. The deficit to the average amount widened to 3.0%.
Stockpiles in the East Region received a net withdrawal of 46 billion cubic feet to 1 815 billion and were 7.9% less than the average. In the West Region, stockpiles fell by 26 billion cubic feet to 504 billion and were 1.2% above the average. Meanwhile, inventories at the Producing Region fell by 9 billion cubic feet to 1 214 billion and exceeded the five-year average by 3.5%.
The energy source continued to draw support on outlook for cold temperatures across most of the densely-populated US areas. NatGasWeather.com forecast that two weather systems will merge and cause widespread areas of wintry precipitation over the Midwest and Northeast along with showers and storms over the Southeast. Snow of 4-8 inches will cover the Ohio Valley and Northeast, with many areas covered by more than a foot. Increased heating demand is expected during the weekend as the snow will combine with strong winds and bitter cold temperatures. Next week, the weather pattern will enter a transition period, with much warmer conditions pushing from west to east across the US, temporarily easing natural gas demand. Another major Arctic outbreak will cross the Northern Rockies around the 20th and will then push deep into the central and eastern US, with probability to significantly impact even the South. The cold blast will cause huge temperature anomalies, leading to massive surge in natural gas and heating demand. However, it will take some time until the extremely cold air hits the higher consumption states of the eastern US, which will allow the east to have numerous days of near to above normal temperatures. The forecast called for reinforcing shots of cold air, which will keep much of the nation in bitter cold temperatures through the Christmas Holiday and may be even to New Year.
NatGasWeather.com’s extended forecast for the week ending December 27th called for another Arctic blast pushing into the Northern Rockies around the 20th and will then rapidly push into the Plains and Midwest by 22nd. The cold outbreak will bring temperature anomalies running well above 25-35 degrees Fahrenheit below normal. There is potential for the blast to push deep into Texas and even the Southeast, with extremely cold conditions. The challenge is to forecast how fast will the outbreak spread to the east. Data so far supports a fairly rapid movement. However, there is also some evidence that the blast will keep the ridge over the east for several days longer, warming temperatures even more. The temperature differences between the two scenarios could reach 30-50 degrees Fahrenheit, but once the cold gets established over the Eastern US, huge natural gas and heating draws are expected. The cold weather pattern will remain in place until Christmas holiday.
According to AccuWeather.com, the low in Indianapolis on December 17th will be 16 degrees Fahrenheit, or 8 degrees beneath average. Readings in Detroit on December 15th will bottom at 17 degrees Fahrenheit, below the average of 25 degrees, while the low in Chicago will be 13 degrees Fahrenheit, 9 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.