Natural gas poised for biggest weekly decline in 17 years as US inventories fall less than expected

Natural gas declined a fifth day and headed for the largest weekly drop since 1996, after a government report revealed US gas inventories fell less than analysts estimated in the week ended February 21st. Prices of gas futures were also pressured by long-term weather forecasting models, which 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 1.03% to trade at $4.465 per million British thermal units by 10.52 GMT. Natural gas futures hit a session high at $4.490 per mBtu, while day’s low was touched at $4.452 per mBtu, the weakest level since January 22nd.

Natural gas is down 28% this week and is heading for the biggest drop since December 1996 and down 8.5% in February, after adding 26% last year, the best performance since 2005 and second straight annual advance.

US gas inventories levels

The Energy Information Administration reported yesterday that US natural gas inventories fell by 95 billion cubic feet in the seven days through February 21st, below the median analyst forecast of 102 billion cubic feet in a Bloomberg survey.

Total gas held in US underground storage hubs fell to 1.348 trillion cubic feet. US gas stockpiles were 40.2% below last year’s amount of 2.253 trillion cubic feet during the comparable week. The deficit to the five-year average widened to 34.5%, up from 33.9% a week earlier.

Inventories at the East Region received a net withdrawal of 78 bcf and fell to 607 bcf, 37.3% below the five-year average of 968 billion cubic feet. Stockpiles in the West Region fell by 12 bcf to 217 bcf and were 31.3% beneath the average. Inventories at the Producing Region slid by 5 bcf. At 524 bcf, they were 32.4% below the five-year average amount of 775 billion cubic feet.

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.

Short-term weather outlook

NatGasWeather.com reported on February 28th that the cold air will probably remain anchored over the northern US, until a strong 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 probable impressive winter storm brings back much lower-than-normal temperatures over the northern US, Plains and Southeast at the end of the week.

Extended forecast

NatGasWeather.com’s extended forecast for the period ended March 12th called for a strong winter storm to track across the eastern US. While the initial storm will briefly moderate 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 storm, bringing heavy rain, thunderstorms and snowfall. The storm may even leave heavy snowfall as it tracks out of the US around March 5th.

Colder-than-normal conditions over the northern US are expected to close out the first week of March, with temperatures 10-25 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.