Natural Gas Price Fundamental Daily Forecast – Steep Plunge on Milder Temps, Lower Demand Expectations

Natural gas futures dropped more than 6% on Thursday, pressured by forecasts for milder weather and lower heating demand than previously expected. A smaller-than-usual government storage withdrawal the previous week also weighed on prices. Additionally, significant risk in holding positions over the long Christmas holiday weekend encouraged weak longs to lighten up speculative positions.

On Thursday, March natural gas futures settled at $3.514, down $0.199 or -5.36%.

Early January Cold Front Not as Impressive as Initially Expected

NatGasWeather said both the Global Forecast System (GFS) and European model shed a decent amount of demand overnight for the important January 1-6 period after trending colder on Wednesday. And while the midday GFS gained back a few heating degree days (HDD) for the period, it still wasn’t as cold as it had been.

Both models still forecast strong demand the first week of January, “just not as impressive with the intensity of cold compared to prior runs,” according to NatGasWeather. That said, a slight shift north or south with the frigid cold pool over southern Canada during the January 1-7 period, and U.S. demand could plummet or spike in response.

“To our view, we expect there will be enough cold air over the northern U.S. for strong demand the first week of January, just difficult to know exactly how much subfreezing air will ultimately arrive,” NatGasWeather said.

US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) said utilities pulled 55 billion cubic feet (bcf) of gas from storage the week-ended December 17.

According to Natural Gas Intelligence (NGI), a Bloomberg survey produced a range of withdrawals from 50 Bcf to 62 Bcf, with a median draw of 54 Bcf. A Wall Street Journal poll had the same range of estimates, with an average pull of 57 Bcf. Likewise, a Reuters poll with the same range produced a median draw of 56 Bcf. NGI’s model predicted a pull of 53 Bcf.

A year earlier, utilities withdrew 147 Bcf from storage, while the five-year average is a 153 Bcf reduction in supplies, according to EIA.

Last week’s withdrawal reduced stockpiles to 3.362 trillion cubic feet (tcf), or 1% above the five-year average of 3.328 tcf for this time of year.

Short-Term Outlook

Prices could continue to move lower early next week unless the weather models put more cold into the January 1-5 forecast.

If warmer forecasts and rising supply weren’t bearish enough, gas prices in Europe dropped more than 15% as expectations of the arrival of several liquefied natural gas (LNG) tankers and warmer weather over the next few days helped to offset low exports from Russia.