US natural gas futures dropped nearly 5 percent on Thursday on forecasts for less heating demand next week than previously expected and a report showing a slightly smaller-than-expected weekly storage withdrawal. The US Energy Information Administration said utilities pulled just 33 billion cubic feet of gas from storage during the week ended on November 24, the smallest draw for that week since 2013.
That fell short of the 37 bcf analysts forecast in a Reuters poll and compares with a year-earlier withdrawal of 43 bcf and a five-year average decrease of 47 bcf for that period. That weekly decline left stockpiles at 3.693 trillion cubic feet, or about 2.8 percent below the 3.800 tcf five-year average for this time of year. Front-month gas futures fell 15.4 cents, or 4.8 percent, to settle at $3.025 per million British thermal units. For the month, the contract ended up about 4 percent, its first gain in three months.
Traders said open interest in the front month hit a record high on Wednesday as they tried to participate in the expected US liquefied natural gas boom. The United States is expected to be a net gas exporter on an annual basis in 2017 for the first time in 60 years, due in part to sharp growth in LNG shipments abroad.
The country, which was not exporting any LNG at the start of 2016, is expected to have the world's third-biggest export capacity of the fuel by the end of 2018, behind only current market leaders Australia and Kuwait.
In addition, traders said implied volatility for the front-month rose to its highest level this year due to huge price swings over the past week.
Gas futures have been on a roller-coaster ride since the November 23 US Thanksgiving Day holiday because of changing weather forecasts. On Friday, the front month dropped 5 percent, its biggest daily percentage decline since February, before jumping 4 percent on Monday, 5 percent on Tuesday and more than 3 percent on Wednesday. Thomson Reuters cut its projection for next week's US gas consumption to an average of 93.3 billion cubic feet per day from 94.2 bcfd as forecasts for less cold weather reduced heating demand expectations.
That compares with forecast usage of just 85.7 bcfd this week.
Included in the consumption projections are US exports to Mexico and Canada via pipeline and the rest of the world as LNG. US sales abroad were expected to average 10.1 bcfd this week, up 28 percent from a year earlier.
Production in the lower 48 US states needed to meet that demand averaged an all-time high of 76.1 bcfd over the past 30 days, according to Reuters data. Output peaked on Monday at a daily high of 76.9 bcfd.
Even though the amount of gas in storage is less than usual for this time of year, some traders said that should be more than enough fuel to meet demand this winter, especially if production remains near record highs and the latest weather forecasts for the season are correct.
The National Weather Service projected temperatures would be slightly higher than normal in December, January and February across much of the country, but lower than the previous two winters (2015-2016 and 2016-2017), which were among the warmest on record.