US natural gas futures edged higher on Wednesday before a storage report expected to show the biggest draw so far this season and weather forecasts calling for the weather to remain seasonably cold through the first week of February. After falling 15 percent last week, front-month gas futures on the New York Mercantile Exchange closed up 2.7 cents, or 1.3 percent, at $2.118 per million British thermal units.
Both the US and European weather models forecast that temperatures would remain seasonably cold for the next two weeks with more cold this week and less cold next week. But the weather so far this January was not as brutally cold as the last two years, when the polar vortex extended its reach across most of the United States.
So far this winter, the weather was running about 15 percent warmer than the 30-year normal, with heating demand about 11 percent lower than normal in November and 28 percent lower in December. To date, January has been about 2 percent colder than normal. February and March, however, were expected to be about 13 percent and 9 percent warmer than normal, according to estimates from Thomson Reuters Analytics.
"Unfortunately for the bulls with the large overhang of gas in inventory, short-term bouts of cold weather are not enough to send prices into a sustained upside rally," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note. In early estimates, analysts forecast utilities pulled about 184 billion cubic feet of gas out of storage to heat homes and businesses during the cold last week. That would be the biggest withdrawal since last March and compared with a 220-bcf draw during the same week a year ago and a five-year average draw of 177 bcf. With the cold continuing this week, analysts estimated utilities pulled an even bigger 206 bcf from storage, which is likely to be the biggest draw of this winter as the weather turns less cold for the rest of the season. Despite the forecast big draws, the amount of gas in storage was expected to remain at the highest levels since at least 2012, the last year when gas prices collapsed during a winter of light heating demand and record levels of the fuel in storage.