US natural gas futures edged higher on Wednesday on a slowdown in production but hovered near a four-year low on forecasts that mild weather would crimp heating demand through early February.
After falling over 13% in the past four sessions, front-month gas futures for February delivery on the New York Mercantile Exchange rose 1 cent, or 0.5%, to settle at $1.905 per million British thermal units (mmBtu). On Tuesday, the contract closed at its lowest since March 2016.
Since hitting an eight-month high of $2.905 per mmBtu in early November, futures have collapsed 34%. Near-record production and mild weather have enabled utilities to leave more gas in storage, making shortages and winter price spikes much less likely.
"With no relief to be found through sustained, strong weather demand, the full weight of two remarkable years of production growth will continue to press on the market," Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report. US dry gas output soared 12% in 2018 and 10% in 2019 but is only expected to grow 3% in 2020 and decline 1% in 2021 as low prices cause producers to reduce drilling activity, according to federal energy projections.
On Wednesday, however, gas production in the US Lower 48 states was on track to fall to a three-month low of 93.2 billion cubic feet per day (bcfd), according to early pipeline flow data from Refinitiv. That compares with an average of 94.6 bcfd last week and a daily record high of 96.8 bcfd on November 30.
Meteorologists projected the weather in the Lower 48 states will remain mostly warmer than normal over the next two weeks. So far this winter, the weather has been milder than usual with average daily temperatures 3 degrees Fahrenheit higher than normal in December and 5 degrees higher during the first three weeks of January.
Refinitiv projected average demand in the Lower 48, including exports, would drop from 130.9 bcfd this week to 118.4 bcfd next week. That is lower than Refinitiv's estimates on Tuesday of 131.3 bcfd this week and 119.9 bcfd next week due to warmer forecasts and lower liquefied natural gas (LNG) exports.
Gas flows to LNG export plants were expected to fall to 8.6 bcfd on Wednesday from 9.1 bcfd on Tuesday, according to preliminary data from Refinitiv. That compares with an average of 8.0 bcfd last week and a record high of 9.3 bcfd on January 19.
Analysts said utilities likely pulled 91 billion cubic feet (bcf) of gas from storage during the week ended Jan. 17. That compares with a decline of 152 bcf during the same week last year and a five-year (2015-19) average reduction of 194 bcf for the period.
If correct, the decrease for the week ended Jan. 17 would cut stockpiles to 2.948 trillion cubic feet (tcf), 9.3% above the five-year average of 2.696 tcf for this time of year.
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