Next Stop for U.S. Natural Gas Is 20-Year Low Amid Warm Weather

  • Above-normal temperatures seen for U.S. East through Dec. 30
  • Gas production heading for fifth straight annual record

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Natural gas futures are trading at the lowest level since 1999. Next stop: the cheapest in two decades.

Gas closed at $1.79 per million British thermal units Wednesday and is poised to head below $1.60, the lowest price since 1995, as an unseasonably warm December curtails demand for the heating fuel, according to Gelber & Associates and ICAP Energy LLC. The biggest stockpile surplus since 2012 is on course to expand as production heads for a fifth straight annual record amid unprecedented output from the Marcellus and Utica shale formations.

The weather will be warmer than normal across the eastern U.S. through Dec. 30, said MDA Weather Services. Manhattan’s high on Dec. 23 will be 69 degrees Fahrenheit (21 Celsius), 28 more than usual, according to AccuWeather Inc.

“There’s not a huge difference between $1.80 and $1.60, from a historical standpoint,” said Aaron Calder, an analyst at Gelber & Associates in Houston. “They’re both incredibly cheap. We’re not seeing anything in the 16-day weather outlook that would be supportive for prices.”

Gas futures for January delivery dropped Wednesday by 3.2 cents, or 1.8 percent, on the New York Mercantile Exchange to the lowest settlement since March 24, 1999. Futures are down 38 percent this year, heading for the biggest annual decline since 2006. Gas traded below $3 in the early 1990s amid lackluster demand for the fuel until a jump in gas-fired power generation boosted prices.

Oil and gas driller Devon Energy Corp. slid 4.1 percent Wednesday, one of the worst performers in the Standard & Poor’s 500 Index. The S&P 500 Energy Sector Index is down 22 percent this year.

“Just when we think it can’t get any warmer, we see more heating demand losses on the horizon,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The weather is really limiting stockpile withdrawals.”

Natural gas inventories probably declined by 42 billion cubic feet in the week ended Dec. 11, based on the median of nine analyst estimates compiled by Bloomberg. Stockpiles totaled 3.88 trillion cubic feet as of Dec. 4.

“It’s hard to have a target down here, but $1.50 is in the sights,” Drew Wozniak, vice president for market research and analysis at ICAP Energy in Louisville, wrote in a note to clients Tuesday. “Only a major shift in the weather could give any lurking bulls hope.”

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