Natural gas heads for second weekly decline ahead of EIA’s report

Natural gas declined on Friday and was set for second weekly decline, ahead of a government report that may show a lower-than-average withdrawal in US inventories last week. However, weather forecasting models supported the energy source by calling for below-average temperatures in most of the densely-populated US areas, boosting demand for the power-station fuel as Americans crank up the heating.

On the New York Mercantile Exchange, natural gas for delivery in February declined by 0.91% to $4.282 per million British thermal units by 12:00 GMT. Prices shifted in a daily range between $4.322 and $4.271 per mBtu. The energy source lost 1.9% last 5-day period and headed for 1.4% decline this week so far. However, prices settled 24% higher last year, the best performance since 2005 and second straight annual advance.

According to the median analysts forecast of 16 analysts in a Bloomberg survey, US inventories probably decreased by 117 billion cubic feet in the week ended December 27th, which is less than the five-year average drop. The forecasts ranged from declines of 103 billion to 143 billion bcf. Stockpiles declined 126 billion bcf during the same period last year, while the 5-year average drop for the same period is 121 billion bcf.

NatGasWeather.com forecast a very cold Arctic outbreak to sweep into the central and eastern US over the next few days, leading to very high natural gas and heating demand. By Friday morning, a few inches of snow are expected in the Mid-Atlantic and Northeast. The cold outbreak will push freezing temperatures deep into the South and Southeast, including northern Florida. During the next several nights, the Midwest will experience temperatures as low as -30 degrees Fahrenheit or even lower, with highs struggling to reach the single digits.

Early next week, a reinforcing shot of cold weather will result in continued very high natural gas and energy demand. This will again bring freezing temperatures to the Southeast, including northern Florida. According to the website, national forecasts underestimate the cold outbreak on January 5-7th, which may result in a bullish surprise. A shift in the weather pattern will start on January 8th, leading to moderating temperatures, which will reach near normal for much of the central and eastern US, temporarily easing natural gas and energy demand.

NatGasWeather.com’s extended forecast for the week ending January 17th called for a major pattern change during the second week of January. The recent extreme cold air will move to Canada, allowing high pressure to briefly push into central and eastern US. This will moderate temperatures and will ease natural gas demand, compared to very large draws, which are expected this week. A major surge in natural gas and heating demand for the highest-consumption states of the Midwest, Mid-Atlantic and Northeast may start on January 14th, as the cold air from southern Canada sweeps back into the US territory.

According to AccuWeather.com, temperatures in Indianapolis may bottom on January 6th at -14 degrees Fahrenheit, 35 below the average, while the low in Chicago is expected to be -2 degrees, 20 beneath the usual. In Columbus, readings are expected to plunge to as much as -6 degrees Fahrenheit, compared to the average of 23 degrees.

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.

Prices also continued to draw some support after the Energy Information Administration reported on Friday that US natural gas inventories fell for a sixth consecutive week in the seven days to December 20, reaching the lowest level since August. Supplies slid by 177 billion cubic feet, matching the median estimate of analysts surveyed by Bloomberg and outstripping the five-year average decline of 125 bcf and last year’s 74 bcf drop during the comparable period.

Total natural gas held in underground US storage hubs amounted to 3.071 trillion cubic feet, 16.1% below last year’s level during the same week and 9.2% below the five-year average stockpiles.