US natural gas futures eased a bit on Wednesday as continued weakness in cash prices and an expected storage build offset forecasts for stronger heating demand through the start of December. Front-month gas futures on the New York Mercantile Exchange closed down 2.4 cents at $2.347 per million British thermal units.
With the latest update of the US weather model, the US and European models were mixed again with the US model calling for much colder-than-normal temperatures and stronger heating demand over the next two weeks, while the European model called for near-normal temperatures during that time. Earlier on Wednesday, the US model like the European model had called for near-normal temperatures.
US utilities likely injected 18 billion cubic feet of natural gas into storage during the week ended November 13, which would be the first build during the second week of November since 2011. That compared with a revised increase of 54 bcf in the prior week, a withdrawal of 9 bcf in the same week a year ago and a five-year average draw of 12 bcf.
The US Energy Information Administration will release its storage report at 10:30 am EST on Thursday. Next-day gas prices at the Henry Hub benchmark in Louisiana have averaged $2.06 so far this month on the Intercontinental Exchange, putting the month of November on track to fall to the lowest level since 1995.
Low prices so far in November were pressuring the already depressed Henry Hub calendar year 2015 to an average of $2.70, putting the year on track to fall to the lowest since 1999. Speculators, meanwhile, continue to believe gas prices have further to decline with production at record levels, storage at an all-time high, and forecasts for warmer-than-normal weather this winter due to the El Nino weather pattern.
The 2016 calendar year strip on the NYMEX, meanwhile, was trading around $2.64, putting it even lower the average for calendar 2015 so far. Moreover, some of the most active options on the NYMEX were puts with strike prices not seen since the 1990s like $1.90 for December and $1.95 for January. Traders however have warned that futures were vulnerable to a short-covering rally if the weather suddenly turned colder because speculators could quickly exit big bearish bets. Net short positions held by hedge funds on the NYMEX and Intercontinental Exchange declined a bit last week but were still near five-year highs.