Natural gas futures decline to two-week low on outlook for milder US weather

Natural gas futures declined to the weakest level in two weeks on Wednesday, as weather forecasting models called for a warm-up across many densely populated US areas, curbing demand for the power-station fuel.

On the New York Mercantile Exchange (NYMEX), natural gas for delivery in April plunged by 2.88% to trade at $4.473 per million British thermal units by 13:27 GMT. Natural gas futures hit a session high at $4.627 per mBtu, while day’s low was touched at $4.449 per mBtu, the weakest since February 27th.

Natural gas added 0.15% last week, after losing 26% in the previous 5-day period, the biggest weekly drop since December 1996. In 2013, the energy source added 26%, the best performance since 2005 and second straight annual advance.

US gas inventories levels

According to John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, cited by Bloomberg, US Gas stockpiles probably declined by 191 billion cubic feet in the week ended March 7, compared to a five-year average withdrawal of 95 bcf for the comparable period and 145 bcf drop the same week a year ago.

The Energy Information Administration reported last Thursday 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 bcf.

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.

Short-term weather outlook

NatGasWeather.com reported on March 12th that a strong winter storm will track across the northern US today, bringing heavy snowfall across the Ohio Valley and into the Northeast, with wide areas receiving more than 6-10 inches of snow.

The associated cold air mass will probably push fairly deep into the Southeast, leaving frigid temperatures over many areas. The very cold air, however, will be confined to the Great Lakes region and Northeast with lows dropping into the single digits and teens.

A very short break in the action is expected on Friday into Saturday, as temperatures warm slightly, before another reinforcing cold blast occurs over the weekend, having the potential to leave few inches of snowfall over the northern US.

Extended forecast

NatGasWeather.com’s extended forecast for the period March 19-25th called for chilly weather pattern tracking across the northern US to start the outlook period. The Midwest and Northeast will experience several days of below-normal temperatures and above normal natural gas and heating demand at the beginning of the period.

A strong storm will probably develop around March 21st-22nd in the Plains and will bring milder air as it sweeps through all of the central and eastern US. The later will likely lead to above-normal temperatures over all of the central and eastern US, except for the Midwest and Northeast, where temperatures will be more or less close to normal.

However, after the brief warm-up, additional cold blasts will immediately follow and according to the website, the weather pattern favors colder-than-normal conditions to return for the last week of March.