Following a sharp 17.8-cent decline ahead of the weekend to a settle at
$3.464/MMBtu, January 2015 natural gas futures continued to unwind overnight
ahead of the Monday, Dec. 22, open, as the anticipation of a healthy
end-of-season storage level continued to weigh on values, despite colder
weather forecasts suggesting stronger demand and an increased pace of storage
erosion. Sending the entire overnight session in negative territory, the
contract moved from $3.45/MMBtu to $3.12/MMBtu and was last down an
impressive 33 cents to $3.12/MMBtu, a level not seen since August 2013.
According to the National Weather Service, below-average temperatures will
dominate the bulk of the country in the upcoming six- to 10-day period to
encompass most of the West, the whole central U.S. and much of the East, from a
majority of the Mid-Atlantic on to the Southeast. Average temperatures are
expected to linger over a few parts of the Southwest, Northeast and
Mid-Atlantic, while above-average temperatures are forecast to be confined to
about two-thirds of the Northeast and portions of the Pacific.
Below-average temperatures are seen spreading to engulf more of the East
further out to the eight- to 14-day period, as above-average temperatures
shrink in scope to be contained over parts of the Pacific. Average temperatures
are called only for Maine, southern Florida and a narrow stretch of the
While widespread below-average temperatures in forecasts are expected to
generate increased demand for heating that would heighten the rate of weekly
storage withdrawals going forward, relatively milder conditions than last year
and ongoing robust production should help keep the pace of storage erosion
lackluster compared to historical averages.
“More moderate temperatures in 2014 are supporting the decrease in
consumption; heating degree days since the start of November have been 7.2%
lower in 2014 compared to 2013,” the U.S. Energy Information Administration
said in its latest “Natural Gas Weekly Update.” Consumption of natural gas
since Nov. 1 has averaged 78.1 Bcf/d, down from 83.0 Bcf/d during the
corresponding period last year.
The EIA sees natural gas consumption remaining subdued relative to the
prior-year level through the balance of the winter amid near-average
temperature outlooks this season. “However, even if the rest of the winter
matches last winter in severity, it is unlikely that storage inventories would
drop as low as they did at the end of last winter because of the gains in
production,” the agency said.
Although rig counts are falling, with the latest data from Baker Hughes
Inc. showing that total U.S. rig count dropped 18 since the week ended Dec. 12
due to a loss of 10 oil rigs and eight natural gas rigs, the count remains 107
higher than at the same time last year.
Additionally, the EIA said that in the past several weeks, natural gas
production levels have reached record highs, with dry gas output averaging 70.8
Bcf/d since Nov. 1, which represents an increase of 4.8 Bcf/d over the same
period in 2013.
The EIA calls for an end-of-March 2015 natural gas inventory of 1,431 Bcf,
significantly higher than the 2014 end-of-March storage levels, which were at
an 11-year low of 857 Bcf, according to agency data. Working natural gas in
storage has already surpassed the year-ago level, after a 64-Bcf withdrawal
reported for the week to Dec. 12 took inventories to 3,295 Bcf, generating a
6-Bcf surplus to the prior-year figure which was impacted by frigid cold that
prompted a surge in demand and sharp reduction in the natural gas supply.
Compared to the five-year average of 3,553 Bcf, a 258-Bcf deficit remains.