US natural gas futures fell to their lowest level so far this year on Thursday on a smaller-than-expected storage draw and forecasts for warmer weather over the next two weeks. Front-month gas futures on the New York Mercantile Exchange closed down 6.6 cents, or 3.2 percent lower, at $1.972 per million British thermal units.
"It looks as though the chance of a retest of the $1.684 spot low trade from December has increased," Tim Evans, energy futures specialist at Citi Futures, said in a note, pointing to the slightly smaller-than-expected storage draw and a milder weather forecast. The US Energy Information Administration said utilities pulled 152 billion cubic feet of gas from storage last week. That was slightly less than analysts' 158-bcf forecast in a Reuters poll and compares with draws of 112 bcf in the same week last year and a five-year average draw of 165 bcf.
The latest midday US weather model called for warmer-than-normal weather over the next two weeks, a switch from a forecast earlier in the morning calling for seasonably cold weather during that time. That warm weather is expected to continue for the rest of the winter, with February forecast to be 7 percent warmer than normal and March to be 19 percent warmer than normal, according to Thomson Reuters Analytics.
So far this winter (November-March), utilities have pulled just 1,075 bcf of gas out of storage. That compares with 1,161 bcf a year earlier and a five-year average of 1,316 bcf. Over the past five years, utilities have pulled an average of 2.2 trillion cubic feet of gas from storage during the 22-week winter heating season.
Storage withdrawals have been low this winter because heating demand has been about 14 percent below normal due to the warming effect of the El Nino weather pattern. Some analysts worry that there may be too much gas left in storage at the end of March, when utilities traditionally start injecting the fuel back into storage for the next winter.
Other analysts, however, are not that worried about storage because overall demand is still near all-time highs as the power sector burns record amounts of gas instead of coal to generate electricity. So far this winter, the power sector has burned on average a record 24.6 bcf per day, according to Thomson Reuters Analytics. That compares with 20.9 bcfd during the extreme cold last winter and the 30-year norm of 18.8 bcfd.
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