Natural gas futures trade slightly higher following EIA report, cold US weather outlook

Natural gas futures traded slightly higher on Friday after a government report showed yesterday that US gas stockpiles fell more than projected, reaching a 10-year seasonal low last week. The energy source was also supported by weather forecasting models that called for below-normal temperatures across many densely populated US areas, stoking demand for the power-station fuel, as Americans crank up the heating.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in April rose by 0.1% to trade at $4.666 per million British thermal units by 14:30 GMT. Natural gas futures hit a session high at $4.681 per mBtu, while day’s low was touched at $4.621 per mBtu.

Natural gas was down 26% last week, the biggest drop since December 1996 and settled 5.5% lower in February, after adding 26% last year, the best performance since 2005 and second straight annual advance.

EIAs weekly US gas storage report

The Energy Information Administration reported yesterday that US natural gas inventories fell by 152 billion cubic feet in the seven days through February 28th, above the median analyst’ forecast of 138 billion cubic feet drop and compared to a withdrawal of 149 billion cubic feet a year ago. The decline was also well above the five-year average drop of 105 billion.

Total gas held in US underground storage hubs fell to a 10-year seasonal low of 1.296 trillion cubic feet. US gas stockpiles were 43.2% below last year’s amount of 2.104 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 38.8%, up from 34.5% a week earlier.

Inventories at the East Region received a net withdrawal of 82 bcf and fell to 525 bcf, 41.3% below the five-year average of 895 billion cubic feet. Stockpiles in the West Region fell by 27 bcf to 190 bcf and were 37.5% beneath the average. Inventories at the Producing Region slid by 43 bcf. At 481 bcf, they were 36.2% below the five-year average amount of 754 billion cubic feet.

Short-term weather outlook

NatGasWeather.com reported on March 7th that several weak weather systems will influence the US weather next week. Moderate to heavy rainfall is expected to end over the Southeast coast later today, while at the same time a weak cold front starts to track through the northern Plains.

The cold blast wont be very impressive, but it still has the potential to keep below-normal temperatures over the northern US and to leave some light snow showers.

A brief warm-up is expected to follow Monday into Tuesday before a more impressive and longer-lasting cold outbreak blasts across many regions of the country, bringing moderate to heavy snowfall. Several reinforcing doses of cold Canadian air will follow, which will lead to high or very high natural gas and heating demand, as temperatures drop 10-25 degrees Fahrenheit below-normal over the highest-consumption states of the northern US.

Extended forecast

NatGasWeather.com’s extended forecast for the period March 14-20th called for a fresh cold blast to start the outlook period and to maintain below-normal temperatures across much of the northern US. Several winter storms are predicted to track across the US, each one of them bringing reinforcing doses of cold Canadian air.

The weather pattern that will develop late next week will be quite cold, especially over the Great Lakes and Northeast and will last for the first 5 days of the outlook period as reinforcing shots of cold air continue. However, at the end of the period warmer conditions are expected over the northern US.

The pattern will remain quite active and colder conditions with winter storms will follow. Chilly temperatures are expected over most of the US late next week and will hold for several days. According to the website, fairly strong natural gas and heating demand can be expected during the outlook period.