U.S. Gas Drops After 4-Day Rally as January Forecasts Warm Up

  • Milder temperatures forecast to linger in East to mid-month
  • Week's rebound `probably exaggerated' by December's declines

Natural gas futures retreated for the first time in five days after U.S. weather forecasts for January predicted milder weather, bolstering concern that a supply glut for the heating fuel will persist.

Temperatures will be above normal across the Midwest and East Coast on Jan. 4 through Jan. 8 and will linger across most of the region the following five days, Commodity Weather Group LLC said. Previous models had shown a surge of cold air would sweep most of the lower 48 states. That spurred intraday prices to rally as much as 70 cents on Tuesday from the 16-year low on Dec. 18.

“Going forward we are going to be vulnerable to weather, and unless we see really sustained periods of cold weather, the market is going to have trouble rallying,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “This last week had a 70-cent run and the magnitude was probably exaggerated by how far we had dropped in the first couple of weeks of December.”

February Futures

Gas for February delivery slid 15.6 cents, or 6.6 percent, to settle at $2.214 per million British thermal units on the New York Mercantile Exchange, retreating from a six-week high on Tuesday. Futures are down 0.9 percent this month after losing as much as 25 percent of their intraday value by mid-December.

Gas dropped as February contracts became the front-month futures Wednesday. The rally in January futures pushed prices above the 50-day moving average on Monday and then tested the 100-day moving average the next day. The last time prices traded above those technical levels for more than a few minutes was in August.

The latest change in the forecasts “leads to significant warming in the Midwest by the middle to end of next week and then into the early 11- to 15-day for the East Coast cities,” Matt Rogers, president of Commodity Weather, said in a report to clients. 

Beyond that, the cold threat is diminishing in the forecasts for 16 to 20 days from now for the East and South compared with previous models, he said. “This super El Nino may be crashing the colder pattern potential before it even has time to build.”

Gas inventories probably fell by 53 billion cubic feet last week, based on the median of 16 analyst estimates compiled by Bloomberg. Estimates were for decreases ranging from 18 billion to 78 billion. The five-year average withdrawal for the period is 95 billion. The U.S. Energy Information Administration is scheduled to release its next storage report on on Thursday.

Stockpiles totaled 3.814 trillion cubic feet on Dec. 18, 12.1 percent above the five-year average for the time of the year, the biggest supply glut since March 2013, EIA data show.

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