Extreme volatility persisted on Friday as US natural gas futures dropped over 5 percent on a forecast for less cold weather next week and reduced concerns about fuel in storage despite an extension of the frigid temperatures expected in the last week of January into February. Front-month gas futures for February delivery on the New York Mercantile Exchange were down 17.6 cents, or 5.2 percent, at $3.237 per million British thermal units at 8:36 a.m. EST (1336 GMT). The contract was on track for its biggest daily percentage decline since December.
Despite losses in three of the last four days, the front-month is still set to rise about 5 percent for the week after Monday's massive gain of nearly 16 percent. The contract would record its second weekly increase in a row and the biggest weekly rise since November. With slightly less cold expected, Refinitiv, a financial data provider, reduced its demand projection for next week for the Lower 48 US states to 119.2 billion cubic feet per day (bcfd) from 120.0 bcfd on Thursday.
That compared with 116.4 bcfd during the warmer weather this week and a projected 127.6 bcfd for the last week of January, when extreme cold is expected to blanket much of the country. Colder forecasts for the next few weeks renewed concerns about low stockpiles and revived the extreme volatility seen at the end of 2018 after the market slumbered for several days at the start of the year.
The spread between the intraday high and low has topped 5 percent of the previous session's close for the past six days, including Friday. That compared with just once during the first seven sessions of the new year and 32 times during the last 35 sessions of 2018. The weeks of warmer-than-usual weather in December and early January allowed utilities to cut the vast storage deficit from 21 percent a few weeks ago to just 11 percent currently.
Analysts said next week's US Energy Information Administration report will likely show the amount of gas in inventory this week is higher than a year ago when utilities pulled massive amounts of fuel out of storage to meet soaring heating demand during the frigid start to 2018.
That could end concerns about low stockpiles and much of the reason for the extreme volatility at least until utilities start pulling significant amounts of gas out of stockpiles again if the cold weather materializes. Analysts said utilities likely pulled just 142 billion cubic feet (bcf) of gas from inventories during the week ended January 18. That compared with declines of 273 bcf during the same week last year and a five-year average decrease of 185 bcf for the period.
If correct, the decline for the week ended Jan. 18 would cut stockpiles to 2.391 trillion cubic feet, 10.6 percent below the five-year average of 2.675 tcf for this time of year and the lowest for the week since 2018. Gas output in the Lower 48 has averaged near a record high of 86.9 bcfd over the past 30 days. On a daily basis, production eased to 86.6 bcfd on Thursday from a recent high of 87.4 bcfd on Jan. 11, according to Refinitiv data, well short of the all-time daily output high of 88.8 bcfd on November 30.
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