US natgas futures fall on less cold midday weather forecasts

• The market is simply oversupplied by the massive amount of production that has been added in the past two years
• Futures for calendar 2020, meanwhile, dropped to $2.34 per mmBtu, their lowest on record, according to Refinitiv data going back to 2016.
• HDDs measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).

US natural gas futures fell almost 4% on Friday following the release of midday weather forecasts calling for less cold over the next two weeks than previously expected.

Traders noted prices were already down a bit Friday morning on forecasts for less cold next week.

"The market is simply oversupplied by the massive amount of production that has been added in the past two years," said Kent Bayazitoglu, director of market analytics at Gelber & Associates in Houston, noting, "It will take an Ice Age of a winter to threaten storage levels come March or April."

Front-month gas futures for January delivery on the New York Mercantile Exchange fell 9.3 cents, or 3.8%, to settle at $2.334 per million British thermal units (mmBtu).

That put the front-month up about 3% for the week after falling over 14% last week in its biggest weekly decline since December 2018.

Futures for calendar 2020, meanwhile, dropped to $2.34 per mmBtu, their lowest on record, according to Refinitiv data going back to 2016. That boosted the premium of calendar 2021 over 2020 to its highest since August.

The latest weather forecasts at 12 p.m. EST projected heating degree days (HDDs) in the US Lower 48 states would only reach 413 over the next two weeks. That is lower than an earlier forecast at 6:00 a.m. calling for HDDs to reach 430 and compares with a 30-year average of 412 HDDs for this time of year.

HDDs measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius). The measure is used to estimate demand to heat homes and businesses.

Despite the outlook for less cld, Refinitiv projected average gas demand in the Lower 48 states, including exports, would rise from 115.1 billion cubic feet per day (bcfd) this week to 119.7 bcfd next week and 131.2 bcfd in two weeks with the seasonal cooling of the weather.

Those demand forecasts, however, were lower than Refinitiv's estimates on Thursday of 115.3 bcfd this week and 121.2 bcfd for next week.

Gas flows to liquefied natural gas (LNG) export plants rose to 7.7 bcfd on Thursday from 7.0 bcfd on Wednesday, according to Refinitiv data. That compares with an average of 7.3 bcfd last week and an all-time daily high of 7.9 bcfd on Nov. 28.

Pipeline flows to Mexico, meanwhile, edged up to 5.4 bcfd on Thursday from 5.3 bcfd on Wednesday, according to Refinitiv data. That compares with an average of 5.4 bcfd last week and an all-time daily high of 6.2 bcfd on Sept. 18.

Analysts said utilities likely pulled 82 billion cubic feet (bcf) of gas from storage during the week ended Dec. 6. That compares with a withdrawal of 75 bcf during the same week last year and a five-year (2014-18) average decline of 68 bcf.

If correct, the decrease would cut stockpiles to 3.509 trillion cubic feet (tcf), 0.7% below the five-year average of 3.532 tcf for this time of year.

Analysts said stocks would likely return to a surplus over the five-year average during the next month or so as rising production enables utilities to leave more gas in storage.

Gas production in the Lower 48 states slipped to 95.6 bcfd on Thursday from 95.8 bcfd on Wednesday, according to data provider Refinitiv. That compares with an average of 95.9 bcfd last week and a record high of 96.3 bcfd on Nov. 30.