Natural gas futures touch seven-week low following US gas storage data, milder US weather outlook

Natural gas futures declined to the weakest level in more than seven weeks, after a government report showed today that US gas stockpiles fell less than projected last week and 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 1.35% to trade at $4.430 per million British thermal units by 14:57 GMT. Following the release of the report, natural gas futures hit a session low at 4.382, the weakest level since January 21st, while days high was touched at $4.495 per mBtu.

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.

EIA’s weekly US gas storage report

The Energy Information Administration reported today that US natural gas inventories fell by 195 billion cubic feet in the seven days through March 7th, less than the median analyst forecast of a 199 billion cubic feet drop and compared to a withdrawal of 145 billion cubic feet the same week a year ago. However, the decline was more than double the five-year average drop of 95 bcf during the comparable period.

Total gas held in US underground storage hubs fell to a 10-year seasonal low of 1.001 trillion cubic feet. US gas stockpiles were 48.9% below last year’s amount of 1.959 trillion cubic feet during the comparable week. The deficit to the five-year average widened to a record 46.2%, up from 38.8% a week earlier.

Inventories at the East Region received a net withdrawal of 95 bcf and fell to 430 bcf, 47.9% below the five-year average of 825 billion cubic feet. Stockpiles in the West Region fell by 21 bcf to 169 bcf and were 42.9% beneath the average. Inventories at the Producing Region slid by 79 bcf. At 402 bcf, they were 45.5% below the five-year average amount of 737 billion cubic feet.

Short-term weather outlook

NatGasWeather.com reported on March 13th that cold air has tracked across the central and eastern US on the backside of the currently departing winter storm, leading to below-normal temperatures and freezing overnight lows over the highest-consumption states of the Midwest and Northeast, but also the Mid-Atlantic and Southeast.

A very short break in the action is expected on Friday, as temperatures warm slightly, before another reinforcing cold blast occurs this weekend over the northern US, with a potential to leave few inches of snow. A fresh weather system is expected to sweep across the northern US next week.

The weather forecast is a bit sloppy for now, but the website reported that the pattern will be quite active and is expected to remain such, with freezing cold air remaining near the Canadian border or over the northern US throughout.

Extended forecast

NatGasWeather.com’s extended forecast for the period March 20-26th called for a very sloppy pattern to mark the outlook period, with various scenarios that can play out. There are two contrary scenarios, the first one calls for a very cold air over southern Canada, but not much over the norther US, while the other forecast the cold air to push fairly deep into the central US.

Regardless of that, the website reported that there will be warm surges, strong storms and cold blasts, with the only question remaining how much warmer and colder. Milder conditions will probably occur around March 22nd-25th, followed by more impressive cold blasts for the northern US thereafter. The active pattern will continue at least until the first week of April.