U.S. natural gas futures dropped more than 6% to a near two-week low on Wednesday on forecasts for warmer-than-usual weather and a smaller-than-expected storage draw last week.
The U.S. Energy Information Administration (EIA) said utilities pulled 152 billion cubic feet (bcf) of gas from storage during the week ended Dec. 18.
That was less than the 160-bcf decline analysts forecast in a Reuters poll and compares with a decrease of 146 bcf during the same week last year and a five-year (2015-19) average withdrawal of 127 bcf.
Front-month gas futures fell 17.2 cents, or 6.2%, to settle at $2.608 per million British thermal units, their lowest close since Dec.11.
"Near-term prices support has evaporated on a lower than expected, 152 bcf storage withdrawal in this morning's report and variable forecasts for dissipating cold by early January," said Daniel Myers, market analyst at Gelber & Associates in Houston.
"More cold (weather) will be needed in upcoming forecasts if the market is going to recover its footing going into the holidays and prevent a collapse to the January contract's prior lows," he added.
Data provider Refinitiv estimated 436 heating degree days (HDDs) over the next two weeks in the lower 48 U.S. states, below the 30-year average of 458.
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.
Refinitiv projected average demand, including exports, would slip from 124.3 billion cubic feet per day (bcfd) last week to 119.8 bcfd this week as the weather turns milder before rising to 127.9 bcfd next week with the expected arrival of more cold.
Output in the Lower 48 U.S. states has averaged 91.0 billion bcfd so far in December.
That compares with a seven-month high of 91.0 bcfd in November 2020 and an all-time monthly high of 95.4 bcfd inNovember 2019.
Natural gas futures in Europe and Asia rose to their highest levels in more than a year driven by a sharp increase in demand late in 2020, especially out of China, just as a cold spell in other parts of the region boosts demand for the fuel.
China's liquefied natural gas imports hit a fresh peak on rising demand at the start of the heating season, data showed on Wednesday.
The amount of gas flowing to U.S. LNG export plants, meanwhile, has averaged 10.7 bcfd so far in December, which would top November's 9.8-bcfd record.