Natural gas futures tumbled to a new one-month low on Thursday after U.S. data showed domestic demand was about half of what was expected last week and as weather forecasts dampened the outlook for gas-fired heating demand.
Natural gas for January delivery settled down 15.6 cents, or 4.1%, at $3.649 a million British thermal units, the lowest since Oct. 28. on the New York Mercantile Exchange. It was the sixth straight losing session for the market, with prices now approaching bear market territory, defined as a fall of 20% or more from a recent peak. Prices are down nearly 19% from $4.489 a million Btus reached on Nov. 20.
The surging volatility in the natural gas market has closely followed the extreme weather pattern in the U.S. in recent months, with a colder-than-average November followed by projections for a warmer-than-average December. At this rate, giving surging domestic gas production and weak demand as the market enters a period of normally peak usage, the U.S. could erase its supply deficit within weeks.
“This weather is unusual,” said Teri Viswanath, natural gas strategist at BNP Paribas in New York. “As cold as it was in November, it’s as mild or warm in December.”
In weekly data reported by the U.S. Energy Information Administration, domestic natural gas inventories fell by 22 billion cubic feet in the week ended Nov. 28, compared with an expected decline of 43 bcf, according to the average estimate of analysts surveyed by The Wall Street Journal. Total inventories now stand at 3.4 trillion cubic feet, 9.8% below the five-year average. Last winter’s severe cold drained stockpiles to an 11-year low.
Heating demand doesn’t look set to recover soon. New forecasts called for a series of mostly above-average temperatures over most of the U.S. in the next two weeks, with a huge swath of much-above-average warmth over the Midwest as late as Dec. 18—normally one of the coldest regions of the country and a strong driver of gas-fired heating demand.
“Additional (price) declines are certainly possible should the current mild temperatures views extend through the upcoming weekend,” research consultancy Ritterbusch & Associates said in a note.