Natural gas extends two-day drop on expectations for milder weather in the US

Natural gas extended a two-day decline to touch one-month low as long-term weather forecasting models called for a warm-up in the US during the second week of March, easing natural gas and heating demand.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in April fell by 4.04% to trade at $4.502 per million British thermal units by 13:09 GMT. Natural gas futures hit a session high at $4.685 per mBtu, while day’s low was touched at $4.485 per mBtu, the weakest level since January 22nd.

On February 20, the energy source touched $6.378 per million British thermal units, the strongest level since December 4th 2008 to settle last week 19.9% higher.

Prices have soared 29% so far in 2014, as the US experienced the coldest January in two decades, which boosted demand for the heating fuel and cut stockpiles at the second week of February to a 10-year low for that time of the year. The energy source settled last year 26% higher, the best performance since 2005 and second straight annual advance.

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, and are also the second-biggest gainer after coffee.

“The market has sold off on the expectation that the worst is behind us,” said Teri Viswanath, the director of commodities strategy at BNP Paribas SA in New York, cited by Bloomberg. “This is nothing more than institutional investors taking profits and liquidating their March contract as we approach expiry.”

Short-term weather outlook

NatGasWeather.com reported on February 26th that a weak weather system is expected to track through the Northeast today, with some light snow showers. Over the southern US, a colder front will bring moderate to heavy showers and storms. The next reinforcing blast of Arctic air will push into the Great Lakes later todayand into New England on Thursday along with a band of light snow. Over the Midwest, temperatures are expected to be freezing cold, with overnight lows dropping between -15 to -28 degrees Fahrenheit, while near zero and single digit readings are projected for the Northeast.

The cold air will probably remain anchored over the northern US, until a weather system out of the Southwest warms temperatures into the central US and Mid-Atlantic on Saturday, forcing the extreme cold over the north to weaken. The latter will moderate temperatures and ease natural gas demand for several days, before a a probable Northeastern storm brings a return to colder-than-normal temperatures over the highest-consumption states of the Northeast at th end of the week.

Extended forecast

NatGasWeather.com’s extended forecast for the period ended March 11th called for a strong winter storm to track across the central US. While the initial storm leaves cold air in its wake over the northern US, a much stronger storm will be developing over the central US. The latter will briefly warm temperatures (for a day or two) over the Mid-Atlantic and portions of the Northeast.

The second storm has the potential to develop into a massive Northeastern storm around March 4-5th, bringing heavy rain, thunderstorms and snowfall. Colder-than-normal conditions over the northern US are expected to close out the first week of March, with temperatures 10-15 degrees Fahrenheit lower than average.

However, according to the website a gradual warm-up is expected at the end of the outlook period, which will ease natural gas and heating demand during the second week of March.

US gas inventories levels

The Energy Information Administration reported on Thursday that US natural gas inventories fell by 250 billion cubic feet in the seven days through February 14th, below the median forecast of 257 billion cubic feet, by 16 analysts in a Bloomberg survey. The decline, however, was almost double the five-year average drop of 133 bcf during the comparable week.

Total gas held in US underground storage hubs fell to 1.443 trillion cubic feet, the weakest level for this time of the year since 2004. US gas stockpiles were 40.3% below last year’s amount of 2.418 trillion cubic feet during the comparable week, which is also an all-time high. The deficit to the five-year average widened to a record 33.9%, up from 27.2% a week earlier.

At the same time, on February 24, the US investment bank Goldman Sachs lowered its end-of-March inventory levels’ forecast for a third time to 1 trillion cubic feet, down from 1.2 trillion. The bank previously trimmed its forecast to 1.2 trillion from an earlier estimate of 1.39 trillion cubic feet, while the initial estimate was 1.61 trillion cubic feet.