US natural gas futures fall on less heating demand

US natural gas futures fell 5% on Monday on forecasts for less cold weather and heating demand through late December than previously expected. Meteorologists now forecast the weather over the US Lower 48 states will fluctuate from warmer to colder than normal through Dec. 20 before turning warmer than normal through at least Dec. 24. Previously, they predicted temperatures would return to near-normal levels after remaining lower than normal from Dec. 11-December 19.

Front-month gas futures for January delivery on the New York Mercantile Exchange (NYMEX) were down 11.6 cents, or 5.0%, at $2.218 per million British thermal units at 11:07 a.m. EST (1607 GMT), putting the contract on track for its lowest close since October 11.

Earlier in the session, the front-month fell to $2.158, its lowest since August 23.

That price collapse briefly caused futures for February to trade at a premium over January for the first time since 2008. It also caused the premium of futures for March over April 2020, a spread traders use to bet on winter weather, and futures for all of 2020 to drop to their lowest levels on record.

Those price declines prompted speculators to boost their net short positions on the NYMEX and Intercontinental Exchange last week by 44,641 contracts to 213,682, their highest since August, according to data from the US Commodity Futures Trading Commission (CFTC).

With less cold weather forecast, data provider Refinitiv cut its projections for average demand for next week in the Lower 48 states, including exports, to 123.4 billion cubic feet per day (bcfd) from 131.2 bcfd on Friday. Refinitiv also reduced its forecast for average demand this week to 118.0 bcfd from 119.7 bcfd on Friday.

Gas flows to liquefied natural gas (LNG) export plants rose to a record 8.2 bcfd on Sunday with an increase in flows to the second train at Freeport LNG's plant in Texas, up from 7.9 bcfd on Saturday, according to Refinitiv data. That compares with an average of 7.6 bcfd last week.

Pipeline flows to Mexico, meanwhile, slipped to four-month low of 4.9 bcfd on Sunday from 5.1 bcfd on Saturday, according to Refinitiv data. That compares with an average of 5.3 bcfd last week and an all-time daily high of 6.2 bcfd on September 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.