Natural gas touches three-week low as chilly weather retreats in the US

Natural gas declined on Monday to touch the lowest level in almost three weeks, as long-term weather forecasting models called for milder conditions in the US, signalling weaker demand for the heating fuel.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in March lost 1.18% to trade at $4.719 per million British thermal units by 10:11 GMT. Prices hit a session high at $4.734 per mBtu, while day’s low was touched at $4.645 per mBtu, the weakest level since January 22nd. On February 5, the contract hit $5.734 per mBtu, the strongest level since January 2010.

Prices soared 17% last month, the largest monthly advance since September 2012, after the energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

CME Group Inc. announced on Tuesday, that effective from February 6th, the initial margin for next-month natural gas futures, traded on NYMEX, will increase almost 10% to $ 5 500 for speculators from $5 005. This will be the highest margin requirement in more than 4 years, and will be almost double the initial margin at the beginning of this year, which was $2 530.

According to Standard & Poor’s GSCI gauge of 24 commodities, gas futures are the most volatile commodity this year as volatility more than doubled from 31.64% last year to 80.2% in 2014.

Short-term weather outlook

NatGasWeather.com reported on February 9th that a Canadian Clipper will continue to bring light snowfall over the Midwest and Northeast, accompanied by a fresh shot of cold air, with single digit and below zero overnight lows across the northern US the next few nights. According to the website, this will lead to high natural gas and heating demand.

Another weather system will track out of the Plains and into the Southeast on Monday, leaving wintry mix of precipitation and below-average temperatures. Meanwhile, Pacific storms will bring much needed rain and snow to the western US

Moreover, another round of light to moderate snowfall can be expected over the Midwest and Northeast during next weekend. The storm will probably be fairly strong and could lead to heavy snowfall over the highest-consumption states of the northern US. The website predicts high natural gas and heating demand through the period ended February 15.

Extended forecast

NatGasWeather.com’s extended forecast for the period ended February 23rd called for a very active weather pattern to continue through the third week of February. A fresh storm may develop over the northern US on February 17-18th, accumulating snowfall and lowering temperatures to below-normal. A period of milder weather conditions is expected as a big ridge pushes through the central and eastern US around 19th-22nd February. According to the website, this will ease natural gas demand over the highest-consumption states of the north, as daytime highs may finally reach 50s.

US gas inventories levels

The Energy Information Administration said in its weekly storage report that US natural gas inventories fell by 262 billion cubic feet in the seven days through January 31st, less than the median forecast of 273 billion cubic feet, by 19 analysts in a Bloomberg survey. However, the decline outstripped the five-year average drop of 151 bcf and last year’s 129-bcf decrease during the comparable week.

Total gas held in US underground storage hubs fell to 1.923 trillion cubic feet, 28.8% below last year’s amount of 2.701 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 22.4%, up from 16.6% a week earlier.

Inventories at the East Region received a net withdrawal of 143 bcf and fell to 920 bcf, 25.3% below the five-year average of 1.232 trillion cubic feet. Stockpiles in the West Region fell by 26 bcf to 327 bcf and were 15.7% beneath the average. Inventories at the Producing Region slid by 93 bcf. At 702 bcf, they were 21% below the five-year average amount of 889 billion cubic feet.