US natural gas futures fell to a nine-month low on Tuesday on forecasts for milder weather later in December than previously expected, while production remains near record highs. Front-month gas futures fell 15 cents, or 5.3 percent, to settle at $2.678 per million British thermal units, their lowest close since February 24.
The price drop pressured the 2018 calendar strip to its lowest level on record, according to Reuters data going back to 2015. That boosted the premium of calendar 2019 over 2018 to its highest since April 2016. Until this week, calendar 2018 traded at a premium over 2019 for more than 15 months as the market bet rising US liquefied natural gas exports and cold weather this winter would boost prices next year.
Traders, however, said the latest winter forecasts have disappointed market bulls. Thomson Reuters analysts projected US gas consumption would fall to an average of 105.3 billion cubic feet per day next week from 110.2 bcfd this week.
Included in the consumption projections are US exports to Mexico and Canada via pipeline and the rest of the world as liquefied natural gas. US sales abroad were projected to average 10.0 bcfd this week, up 37 percent from a year earlier. Separately, the combination of an explosion at an Austrian gas hub on Tuesday, a major shutdown of a North Sea pipeline system earlier in the week and other issues with the European gas market caused gas prices there to spike to their highest since December 2014.
US traders noted those higher European prices should attract more LNG cargos from the United States but would not affect US gas supplies since the country was already exporting as much LNG as possible. Production in the lower 48 US states averaged an all-time high of 76.2 bcfd over the past 30 days, according to Reuters data. Daily output peaked at the end of November at 76.8 bcfd and has remained near that level since.
Analysts said US utilities probably pulled a smaller-than-usual 60 billion cubic feet of gas from storage during the week ended on December 8, the smallest decline for that week since 2015. That compared with a year-earlier withdrawal of 132 bcf and a five-year average decrease of 78 bcf for that period.
If correct, that decline would cut stockpiles to 3.635 trillion cubic feet, just 0.5 percent below the 3.653 tcf five-year average for this time of year. Even though the amount of gas in storage is a little less than usual for this time of year, traders said that should be more than enough to meet heating demand this winter, especially if production remains near record highs and the latest weather forecasts for the full season are correct.
The National Weather Service (NWS) projected temperatures would average a little above normal in December, January and February across much of the country, but lower than the winters in 2015-2016 and 2016-2017, which were among the warmest on record.
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