US natural gas futures slide on warmer weather

US natural gas futures on Wednesday slipped on forecasts confirming the weather will turn warmer than normal through the end of the year despite signs the new year could start with a cold snap.

Front-month gas futures for January delivery on the New York Mercantile Exchange fell 3.3 cents, or 1.4%, to settle at $2.286 per million British thermal units (mmBtu), their lowest close since December 11.

Traders noted prices have dropped 21% since hitting an eight-month high of $2.905 per mmBtu in early November due to warmer than usual weather and expectations inventories will remain over the five-year average in coming months as rising production enables utilities to leave more gas in storage, wiping away lingering concerns of supply shortages and price spikes during the winter.

Meteorologists projected the weather in the US Lower 48 states will turn from colder than normal now to warmer from Dec. 22-29 before turning colder again from Dec. 31-Jan. 2. That is a little cooler than Tuesday's forecasts calling for warmer weather from Dec. 21-30 and colder on January 1.

The cold now is concentrated in New England where next-day gas prices nearly doubled to their highest since January, causing daily power costs in the six-state region to jump over 60% to their highest since March.

Despite those rapid price increases, it is still more expensive to burn oil to heat homes and businesses in New England than gas - $14.58 per mmBtu for fuel oil, $14.71 for heating oil (diesel) and $11.65 for gas at the Algonquin Hub.

On the coldest days in New York and New England, gas and power prices usually spike as homes and businesses use most of the gas available on the region's few pipelines, which become constrained, forcing power generators to burn what is usually more expensive oil.

With the weather expected to moderate, data provider Refinitiv predicted demand in the Lower 48 states, including exports, would fall from an average of 127.2 billion cubic feet per day (bcfd) this week to 119.4 bcfd next week. That is similar to Refinitiv's forecast on Tuesday of 127.2 bcfd for this week and 119.4 bcfd for next week.

Gas flows to liquefied natural gas (LNG) export plants eased to 7.9 bcfd on Tuesday from 8.0 bcfd on Monday, according to Refinitiv data. That compares with an average of 8.0 bcfd last week and an all-time high of 8.2 bcfd on Dec. 8 following the ramp-up of new liquefaction trains at Freeport LNG's plant in Texas and Cameron LNG's plant in Louisiana.

Pipeline flows to Mexico, meanwhile, rose to 5.4 bcfd on Tuesday from 5.2 bcfd on Monday, 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 September 18.

Analysts said utilities likely pulled 90 billion cubic feet (bcf) of gas from storage during the week ended Dec. 13. That compares with a withdrawal of 132 bcf during the same week last year and a five-year (2014-18) average decline of 112 bcf.

If correct, the decrease for the week ended Dec. 13 would cut stockpiles to 3.428 trillion cubic feet (tcf), turning the amount of gas in storage from a deficit during the week ended Dec. 6 to a surplus of 0.3% over the five-year average of 3.420 tcf for this time of year. Gas production in the Lower 48 states fell to 94.5 bcfd on Tuesday from 95.3 bcfd on Monday, according to Refinitiv. That compares with an average of 95.0 bcfd last week and a record high of 96.3 bcfd on November 30.