Natural gas futures are trading sharply lower late in the session on Thursday on weather forecasts for warmer temperatures in late December and early January that previously anticipated and a smaller-than-expected government storage draw last week.
At 19:01 GMT, March natural gas futures are trading $4.513, down $0.302 or -6.27%. The United States Natural Gas Fund ETF (UNG) is at $15.84, down $1.01 or -5.99%.
Exceptionally Mild Temperatures Expected by early 2023
Futures prices were weaker from the opening on Thursday despite forecasts for extreme cold over the next week. NatGasWeather said the overnight weather data continued to show Arctic chills spreading deep into the Lower 48 over the next several days, including far south into Texas.
“However, the overnight data held one of the warmest patterns of the past 40 years” for the final few days of December into early January, NatGasWeather said. “…How long this warmer than normal pattern extends into January will be of great interest, since the longer it holds, the more likely it’s going to continue disappointing” traders waiting for a prolonged winter rally.
US Energy Information Administration Weekly Storage Report
The EIA said utilities pulled 87 billion cubic feet (Bcf) from storage during the week ended Dec. 16. Ahead of the report, a consensus of analysts were predicting a draw of 91 Bcf.
Natural Gas Intelligence (NGI) modeled a pull of 83 Bcf. It also reported that a Bloomberg survey found withdrawal estimates ranging from 80 Bcf to 96 Bcf, with a median 89 Bcf decline in stocks anticipated. A Reuters poll found projections spanning from pulls of 80 Bcf to 110 Bcf, and a median decrease of 94 Bcf.
The pull of 87 Bcf was bearish when compared to the five-year average withdrawal of 124 Bcf. Last year, the EIA recorded a 60 Bcf for the same weekly time period.
Short-Term Outlook
The cold weather is hurting production in Texas but traders don’t seem to be bothered by that news since warmer weather is coming shortly. Bearish traders also seem to be downplaying the restart of the Freeport LNG facility.
When it comes back on line, the response should be positive for natural gas prices because the facility accounts for about 2% of national demand.
Technically, the main trend is down and momentum is pointed to the downside. If $4.240 is taken out with conviction then look for the selling to possibly extend into former bottoms at $3.950, $3.748 and $3.592.
