U.S. natural gas futures fell over 5% on Monday on forecasts for the weather to moderate during the second week of December even though temperatures were expected to be a little colder than previously expected during the next two weeks.
Meteorologists currently forecast the weather over much of the U.S. Lower 48 states will remain near normal through Nov. 30 before turning colder than usual from Dec. 1-6 and then moderate again starting Dec. 7.
On its second to last day as the front-month, gas futures for December delivery on the New York Mercantile Exchange (NYMEX) were down 13.7 cents, or 5.1%, to $2.528 per million British thermal units at 8:57 a.m. EST (1357 GMT). That put the contract on track for its biggest loss since Nov. 11 and second biggest since January 2019.
January 2020 futures, which will soon be the front-month, were down about 12 cents to $2.59 per mmBtu. Earlier in the day, the premium of the January contract over December fell to its lowest on record for a second day in a row, according to data from Refinitiv going back to 2008 when the contracts started trading.
Speculators last week, meanwhile, boosted their net short positions on the NYMEX and Intercontinental Exchange by 51,147 contracts, the most since June, to 120,292 on forecasts for less cold weather later in November and December, according to data from the U.S. Commodity Futures Trading Commission (CFTC).
But with more cold coming during the first week of December, data provider Refinitiv projected average gas demand in the Lower 48 states would rise to 120.4 billion cubic feet per day (bcfd) next week from 107.3 bcfd this week.
Those demand forecasts are a little higher than Refinitiv’s projection on Friday of 119.6 bcfd for next week and 107.0 bcfd for this week.
Gas flows to liquefied natural gas (LNG) export plants eased to 7.4 bcfd on Sunday from 7.5 bcfd on Saturday, according to Refinitiv data. That compares with an average of 7.3 bcfd last week and an all-time daily high of 7.7 bcfd on Nov. 2.
Pipeline flows to Mexico slipped to a near four-month low of 4.9 bcfd on Sunday from 5.0 bcfd on Saturday, according to Refinitiv data. That compares with an average of 5.4 bcfd last week and an all-time daily high of 6.2 bcfd on Sept. 18.
Analysts said utilities likely pulled just 27 billion cubic feet (bcf) of gas from storage during the week ended Nov. 22. That compares with a withdrawal of 70 bcf during the same week last year and a five-year (2014-18) average decline of 57 bcf for the period.
If correct, the decrease would cut stockpiles to 3.611 trillion cubic feet (tcf), 0.8% below the five-year average of 3.641 tcf for this time of year.
Analysts said stockpiles will likely return to a surplus over the five-year average during the next month or so as rising production enables utilities to leave more gas in storage.
Gas production in the Lower 48 states held at 95.85 bcfd for a second day in a row on Sunday, according to Refinitiv. That compares with an average of 95.24 bcfd last week and an all-time high of 95.91 bcfd on Friday.
In the spot market, next-day gas at the Southern California and PG&E (Northern California) citygates both rose to their highest since March. For Southern California it was for a fifth day in a row. Temperatures in some cities in California are expected to drop by as much as 15 degrees Fahrenheit (8 degrees Celsius) below normal levels later this week, according to AccuWeather.