Natural Gas Falls 3% Friday but Could Be Countered by Excellent Withdrawal News
Natural gas futures are down for now, hitting close to their three-month low as warm weather prevails.
Quick overview
- Gas futures in the U.S. fell 3% to $3.30/MMBtu, the lowest since mid-October, due to warm weather forecasts.
- Analysts expect decreased heating demand in the coming weeks, but recent storage reports show a significant withdrawal of 114 bcf, indicating dwindling reserves.
- The unusually warm winter has led to lower gas prices and quicker-than-anticipated gas withdrawals, minimizing excess storage issues.
- Future demand and prices for natural gas will largely depend on weather changes, with potential for price increases if colder temperatures return.
The price of gas futures in the United States fell 3% on Friday and hit their lowest price since mid-October at $3.30/MMBtu as warm weather continues.
Weather forecasts call for warmer weather across the United States next week, causing natural gas futures to dip to a three-month low. Analysts anticipate decreased heating demand in the coming weeks, but there is some good news for natural gas investors this week.
The most recent storage report revealed that 114 bcf was withdrawn over the last week, and that beats the 52-week average as well as the five-year average. This means that those oversupplied reserves are starting to dwindle after a year of excess, and that could help bring the price of natural gas up in the coming weeks.
Weather Outlook and Supply Report Shift Market
In recent weeks, it has been the weather forecasts more than anything that have driven natural gas futures. Investors expected the winter months to be cold and to offer high heating demands, but that has not been the case. This unusually warm winter season in the United States has been marked by low gas prices, warmer than usual temperatures, and has gas withdrawals.
During the entire winter season, we have seen gas reserves being drained quicker than anticipated, minimizing the problem of excess gas storage. Massive injections were made to the reserves throughout the year, even during slow selling months, and that caused the price of natural gas to fall close to $3 a few times.
The prices are not stabilizing yet, but they could as the winter continues. If the warmer weather disappears and this winter ends up very cold in late January and early February, we could see gas futures climb back to their early December highs near $5.10. For now, as warm weather prevails, the $3.50 price is likely to hold steady, but further reports like the most recent EIA one show that there is hope that overstocked reserves are starting to come down.
Demand for natural gas in the United States will be mainly driven by the weather. So, once the forecasts call for cold weather again, we should see the prices spike once more.
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