Natural gas eases off from 5-year highs on US weather forecasts

Natural gas retreated from 5-year highs on Monday, as long-term US weather forecasts called for a period of milder conditions across most of the densely populated US areas.

On the New York Mercantile Exchange, natural gas for delivery in March declined by 1.19% to trade at $5.029 per million British thermal units by 13:01 GMT. Prices hit a session high at $5.198 per mBtu, while day’s low was touched at $5.032 per mBtu. On Friday, prices touched $5.245 per mBtu, the strongest level since February 18th 2010, when prices hit $5.419 per million British thermal units.

The energy source settled last week 20.4% higher, the biggest weekly advance since October 2010. Prices settled last year 26% higher, the best performance since 2005 and second straight annual advance.

Short-term weather outlook

NatGasWeather.com reported on January 26th that the last Arctic blast in the series will sweep into the southern and eastern US on Monday. Temperatures over the the northern US states, which are the highest-consumption states are expected to again drop below zero, which will lead to very strong natural gas and energy demand.

Single digits and teens will push deep into the South-Southeast over the coming nights. The cold outbreak will be accompanied by light snowfall in the Midwest and Northeast.
However, the worst outbreak is expected to occur Tuesday into Wednesday, just before a major pattern change begins to evolve.

On Thursday through Saturday, a more zonal jet stream will set up, leading to gradually warmer temperatures, near normal across much of the central and eastern US. The pattern will be connected with the development of numerous weather systems. The first one may push through the Rockies on Saturday, before tracking across the Midwest and Northeast, bringing areas of rain and snow. The initial system will be followed by more impressive cyclones, which have the potential to significantly warm temperatures as they push into the Northeast coast.

Milder long-term weather forecast

NatGasWeather.coms extended forecast for the week ended February 10th, called for a fairly impressive cyclone, which will bring areas of heavy rain and snow across much of the central and eastern US. According to the website, the weather system will allow temperatures to rapidly rise over parts of the central and eastern US, while at the same time it will lead to episodes of anomalously cold temperatures over the northern Plains, Midwest and New England.

This will lead to lower natural gas demand over much of the South, Southeast and Mid-Atlantic, but it will maintain high demand over the northern US, although not as intensive compared to the recent cold. Some locations along the Northeast coast may even briefly warm into the 50s and 60s.

EIA weekly US gas storage report

The Energy Information Administration (EIA)reported on Thursday that US gas supplies fell by 107 billion cubic feet in the week ended January 17th, which was higher than the median analyst’ forecast for a net withdrawal of 103 bcf. Last week, US gas supplies dropped by 287 billion cubic feet, the largest decline on record.

Total gas held in underground storage hubs equaled 2.423 trillion cubic feet as of January 17th, 19.8% below last year’s 3.021 trillion stored. The deficit to the five-year average narrowed to 13.2% from previous week’s record 14.9%.

Inventories in the East Region fell by 67 bcf to 1.187 trillion and were 17.6% below the five-year average of 1.440 trillion cubic feet. The West Region received a net draw of 15 bcf to 349 bcf, 10.5% below the average. Stockpiles in the Producing Region slid by 25 billion cubic feet and reached 887 bcf, 7.8% beneath the five-year average of 962 billion cubic feet.

According to data by the Energy Department’s statistical arm, supplies have fallen 37% in the past 10 weeks. Jose Villar, an analyst with the U.S. Energy Information Administration, said, cited by Bloomberg: “Gas inventories dropped by 1.386 trillion cubic feet to 2.423 trillion from Oct. 31 through Jan. 17; the drop was 50 percent more than the five-year average decline of 927 billion and the fastest pace of withdrawals on record for the period.”

Meanwhile, the US investment bank Goldman Sachs lowered its end-of-March inventory levels forecast to 1.39 trillion cubic feet from an earlier estimate of 1.61 trillion cubic feet.