US Natural Gas Price Sinks Amid Mild Winter

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Commentary: U.S. natural gas prices sink on mild weather and hedge fund sales

LONDON (Reuters) – U.S. natural gas prices have fallen sharply as the unusual cold weather of late November and early December has given way to warmer-than-normal temperatures in the last four weeks.

Futures prices for gas delivered at Henry Hub in February 2020 have fallen below $3 per million British thermal units from a peak of almost $4.80 in the middle of November.

The exceptional rally in gas prices during the late summer and early autumn has unwound, leaving gas prices back at the low level that has prevailed for the last three years (

Cumulative heating demand for the 2020/19 heating season was around 6 percent higher than the long-run average through Dec. 12, according to the U.S. government Climate Prediction Center.

But the sustained period of cold in late autumn and early winter has been replaced by an extended period of mild weather and cumulative heating demand has now dropped 4 percent below normal (“Degree days statistics”, CPC, Jan. 8).

Government forecasts show average or above-average temperatures expected across most of the major population centres of the United States for much of the next three months.


So far this winter, gas stocks have fallen much less for any given level of heating demand than in the previous heating seasons, which has also helped rebalance the market.

Surging gas prices have encouraged electricity generators to run gas-fired units for fewer hours in the fourth quarter and turn to coal-fired units instead, cutting gas consumption and making scarce stocks go further.

Working gas stocks in underground storage were 726 billion cubic feet (20 percent) below the previous five-year average in mid-December, according to data from the U.S. Energy Information Administration.

By the end of the year, however, the deficit had eased to just 561 billion cubic feet (14 percent) due to warmer weather and a reduction in hours by gas-fired generators (“Weekly natural gas storage report”, EIA, Jan. 4).


The rise and fall in gas prices has been accentuated by the accumulation and subsequent liquidation of hedge fund positions since the end of July and especially since the end of September.

Hedge fund managers correctly anticipated a shortage of gas this winter and the likelihood price spikes would be needed to eke out the low stocks left at the end of the refill season.

Fund managers were net buyers of futures and options equivalent to 2,229 billion cubic feet of gas between late July and mid-November, according to position data from the U.S. Commodity Futures Trading Commission.

By the middle of November, fund managers held almost 7 bullish long positions for every one bearish short positions, the most biggest bullish imbalance since at least 2020.

Between Nov. 13 and Dec. 18, however, as electric generators curbed their gas consumption and temperature forecasts became milder, portfolio managers turned net sellers of 715 billion cubic feet of gas.

Funds probably continued to liquidate bullish positions in the last two weeks of the year – though there is no way to tell yet because publication of updated numbers has been delayed by the U.S. government shutdown.

Hedge fund accumulation of bullish positions likely accelerated and exaggerated the rise in gas prices early in the fourth quarter, but it also enforced the necessary conservation of gas stocks and avoided worse shortages.

As the seasonal gas deficit has been reduced and those bullish positions have unwound, selling pressure has intensified the subsequent price plunge.

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Natural gas prices near 10-year low amid mild weather, higher supplies in winter 2020-12

Natural gas prices continued their downward trend this winter as a result of continued high production levels, mild weather limiting heating demand, and robust storage. On March 31—the end of what is considered winter for the natural gas market—spot natural gas prices at the Henry Hub approached $2 per million British thermal units (MMBtu). On April 18, the natural gas spot price at Henry Hub was $1.87/MMBtu. Storage levels were 2,479 billion cubic (Bcf) for the week ending March 30, more than 60% above the five-year average for that week. U.S. population-weighted heating degree days were 18% below normal from November through March, reducing estimated, average residential and commercial natural gas demand by over 6 billion cubic feet per day (Bcfd) compared to the previous five-year average.

Click on the tab headers below to see charts highlighting factors affecting natural gas prices.

Spot natural gas prices near ten year lows during winter 2020

Spot natural gas prices continued their downward trajectory this winter and remained below previous years’ levels. Spot natural gas prices at the Henry Hub started 2020 below $3/MMBtu and declined to $2.02/MMBtu at the end of winter (March 31). The April natural gas futures contract settled on March 28th at $2.191/MMBtu, the lowest settlement price for the NYMEX natural gas futures contract in over 10 years. Current spot and NYMEX near-month natural gas futures prices are under $2/MMBtu, as of April 19, 2020.

Winter 2020 was warmer than normal

The winter of 2020 was warmer than normal across most of the country—national population-weighted heating degree days (HDDs) were down between 13-36% relative to monthly historical normals from November through March (see chart). By region, every part of the country was warmer than normal for the winter except the Pacific region, which was just slightly (2%) cooler than normal. This relative lack of cold weather reduced natural gas demand and the need to pull natural gas from underground storage.

Warmer weather helped reduce regional price differences in the Northeast

Typically in winter, cold weather increases natural gas demand and prices. This is most evident in the Northeast, where pipeline constraints can result in price spikes during periods of peak winter demand. This winter, cumulative heating degree days in New York City from November to March totaled 3,063, a decrease of 26% from the previous winter. Average NYC basis to the Henry Hub dropped as well, averaging $0.80/MMBtu this winter, down from an average $2.75/MMBtu last winter.

The charts above highlight, in part, the effects of mild weather on regional price differences. In the larger chart, the red dots represent the combination of weather (HDDs) and basis for winter 2020. During winter 2020, basis was high and weather was relatively cold—shown in the upper right-hand quadrant of the scatterplot. However, during the winter 2020, basis was modest and weather was warmer, thus the red dots are located closer to the lower left portion of the scatterplot. The inset chart indicates that basis never rose above $10/MMBtu and had fewer price spikes compared to prior winters.

U.S. natural gas production flattening out, but still high to begin 2020

After a long period of steady growth, U.S. daily dry gas production growth leveled off during the first three months of 2020, averaging 63.8 Bcfd through March 31, a level almost 9% above the same period in 2020. Production from the Marcellus formation accounted for much of the year-over-year growth in dry natural gas production.

Natural gas demand was down, reflecting warmer-than-normal weather

Natural gas demand averaged 75 Bcfd this winter, the lowest average winter demand since 2006-2007. Demand has been impacted greatly, and in different directions, by two factors in the market this winter.

  • Mild weather. The widespread above-normal temperatures reduced natural gas demand from the residential/commercial sector, where natural gas is used largely to heat structures. Residential/commercial natural gas demand estimates averaged 33.4 Bcfd this winter, 22% below last year’s winter demand and the lowest average demand using Bentek data beginning in 2005.
  • Sustained, low natural gas prices. The drop in residential/commercial demand was balanced out to some degree by increased demand in the power sector. Sustained, low natural gas prices have increased the competitiveness of natural gas-fired electric generators relative to other generation units. This winter, natural gas demand from the power sector averaged 20.6 Bcfd, up 17% from last winter and almost double the average daily demand from the power sector during the winter of 2005-2006, according to Bentek.

Natural gas inventories far above historical ranges

The combination of high natural gas production and lower heating degree days this winter reduced storage withdrawals. Storage inventories bottomed out this year at 2,369 Bcf for the week ending March 9, a record high for the winter low, and ended March at 2,479 Bcf, over 60% higher than the five-year average for the end of March. This winter also had only six weeks where cumulative storage withdrawals topped 100 Bcf, compared to a range of 9-12 weeks during each of the previous five winters.

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Weather models remained at the forefront of natural gas trading Friday, with futures quickly reversing the previous day’s gains as overnight data trended warmer. With volumes remaining light after the Christmas holiday, the January Nymex gas futures contract expired 13.6 cents lower day/day at $2.158/MMBtu. February, which takes the prompt position on Monday, settled at $2.231, down 5.4 cents.

Spot gas prices were also weak as weather patterns were expected to remain unusually mild over most of the United States through Monday, except for some unsettling storms out West. The NGI Spot Gas National Avg. fell 11.5 cents to $1.910.

Traders have continued to look for signs that the streak of unseasonably mild temperatures could come to an end as the calendar flips to January, typically one of the coldest months of winter.

Thursday’s weather model data had showed signs that chillier air could arrive by the second week of January, but then the overnight models moved significantly warmer for the next couple of weeks. The European model alone lost a hefty 24 heating degree days (HDD), according to NatGasWeather.

The afternoon European model gained back 14 HDDs by seeing a stronger cold push into the northern United States Jan. 6-9, the forecaster said Friday. “The pattern before then remained exceptionally bearish with HDDs for the next 10 days, running a massive 50 HDDs below normal.”

With the Global Forecast System losing 15 HDDs in the mid-Friday run and the European model gaining 14 HDDs, the two models are now close together on the 15-day forecast, according to NatGasWeather. Although the market was likely glad to see the European model add some demand back, “it doesn’t change the fact that the overall pattern is still quite bearish other than the Jan. 6-8 cold shot.”

As such, the weather data would need to show cold lasting into Jan. 9-11 across the northern part of the country to help the bullish case, “because if it doesn’t, then HDDs will drop right back below normal at the end of the 15-day forecast once the markets reopen,” NatGasWeather said.

The firm noted that futures rallied into the close, which may have been aided by the European model adding back demand, but it viewed the bounce as more about the expiration of the January contract instead of ominous weather patterns.

Indeed, not even another bullish surprise in the latest government storage data could sway the market on Friday. The U.S. Energy Information Administration (EIA) reported a massive 161 Bcf pull from inventories for the week ending Dec. 20.

Traders, however, shrugged off the data, with prices barely budging after the government report was released. The January Nymex futures contract hit an early intraday high of $2.286 before going on to expire a few cents above its intraday low.

Speaking on The Desk’s energy industry chat platform, the chief meteorologist for Bespoke Weather Services, Brian Lovern, said the market appeared to expect a higher number. “Henry Hub cash being in the $1.70s is not helping matters either.” managing director Het Shah noted that the unseasonably warm weather in December has prices sitting near three-month lows. Although prompt-month prices reached similarly low levels this past summer, “that was for the September contract, a shoulder month. This is $2 for January, the coldest month of the year. It doesn’t seem right.”

Estimates ahead of the EIA report ranged widely but generally clustered around a withdrawal in the upper 140s Bcf. Last year, the EIA recorded a 61 Bcf withdrawal for the similar week, while the five-year average withdrawal stood at 101 Bcf.

Broken down by region, the Midwest withdrew a stout 50 Bcf, and the South Central pulled 48 Bcf, including a 37 Bcf draw from nonsalt facilities and a 10 Bcf draw from salts, EIA said. The East reported a 42 Bcf withdrawal, and the Pacific posted a 13 Bcf pull.

Shah said weak Henry Hub cash pricing “is keeping the salts from drawing” in the South Central “until late season, when they’ll all draw uneconomically. It could be a bloodbath in March.”

The hefty cumulative 161 Bcf draw tightened up the year/year storage overhang by 100 Bcf and expanded the deficit to the five-year average by 60 Bcf. Total working gas in storage as of Dec. 20 stood at 3,250 Bcf, 518 Bcf higher than last year at this time and 69 Bcf below the five-year average, according to EIA.

“We remain mostly at the mercy of weather, and if we stay warmer, price declines are still likely,” Bespoke said. “Normal would likely be bullish, given balances.”

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Mild temperatures and light weekend demand combined to send spot gas prices sharply lower on Friday, with prices across much of the country sinking below $2.

Benchmark Henry Hub gas for delivery through Monday averaged $1.820, down 26.5 cents day/day. Similarly steep losses were seen throughout South Louisiana, Texas and across the Southeast.

The sharp retreat seen in prices across South Texas could be partially attributed to lower exports to Mexico. Genscape Inc. said exports to Mexico have plummeted beyond expectations in recent days on unplanned maintenance. The firm had expected exports to fall by about 1 Bcf/d starting with the Christmas holiday and lasting through New Year’s Day, as is typical this time of year.

“However, on Christmas Day, exports sank to just 3,774 MMcf/d, about 1.5 Bcf/d below the prior 30-day average. And the lowest single-day level since April, when maintenance on the Los Ramones system cut South Texas exports by more than 60% for two days,” Genscape senior natural gas analyst Rick Margolin said.

The recent declines on Christmas were exaggerated by an “unplanned operational upset” on the new Sur de Texas-Tuxpan pipeline at its interconnect with the Sistrangas system at Monte Grande, according to Genscape. Flows on Sur de Texas dropped to 368 MMcf/d on Christmas after having averaged 764 MMcf/d in the prior 30 days.

Margolin said TC Energy Corp., the operator of Sur de Texas, indicated the line had to be vented because of overpressure, but no one was hurt and the repairs were completed.

Total U.S.-to-Mexico exports for Friday were estimated at 4,524 MMcf/d, which was more in line with Genscape’s expectations based on normal (albeit seasonal) operations.

With little demand in downstream markets, the writing was on the wall for Permian Basin prices. After trading as low as 10.0 cents on Thursday, Waha spot gas for delivery through Monday plunged as low as minus 75.0 cents, the first time since August that Permian prices have gone negative. Spot gas went on to average minus 14.0 cents, down 41.0 cents day/day.

Out West, the messy weather pattern was set to continue, and prices rose accordingly. Gains were mostly small at less than a dime, although a handful of pricing hubs notched much larger increases.

Southern Border, PG&E cash shot up 54.0 cents to $2.720, and Kingsgate in the Rockies jumped 50.5 cents to $3.035.

On the opposite coast, a couple of Northeast points sank below $2, while some markets in New England hung on by a thread. Transco Zone 6-NY spot gas dropped 19.0 cents to $1.765. Algonquin Citygate tumbled 21.0 cents to $2.005.

Commodities Corner

Myra P. Saefong

Heating oil drops to lowest level since 2004

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Natural-gas prices have plunged to their lowest level in more than 14 years just as the winter heating season has begun.

Natural gas for January delivery US:NGF16 fell 9.6 cents, or 4.8%, to settle at $1.894 per million British thermal units Monday after trading as low as $1.862. It suffered a weekly loss of nearly 11% last week.

Based on the most active contracts, prices saw their lowest settlement since Sept. 26, 2001.

The price drop comes amid a glut in supply. Domestic natural-gas supplies in storage topped out just above 4 trillion cubic feet the week of Nov. 20, the largest storage level on record, based on U.S. government data.

There is “too much natural gas, not enough demand — that is even with the shutdown of coal facilities,” said Richard Gechter, Jr., principal and president of Richard W. Gechter Natural Gas Consulting. “Supply has increased beyond anyone’s expectations.”

The winter season historically runs from November through March. Supplies in storage stood at 3.88 trillion cubic feet as of Dec. 4, and the U.S. Energy Information Administration expects inventories will finish the end of the winter season at 1.862 trillion cubic feet. That would be a smaller drawdown than what’s typically seen in the winter.

“Strong inventory builds, continuing production growth and expectations for warmer-than-normal winter temperatures have all contributed to low natural-gas prices,” the EIA said.

That is why it lowered its natural-gas price forecast for this year and next. The EIA’s monthly report forecasts an average price of $2.67 per million British thermal units this year, versus a previous forecast of $2.69. Next year, it sees $2.88, down from a $3 forecast.

While the latest weekly drop of 76 billion cubic feet reported by the EIA on Thursday was more than the market expected and marked the first positive news for producers in some time, Gechter said it may cause a spike in buying among industrial consumers.

Industrial consumers of natural gas “may decide to step in and start to buy this market,” he said.

For now, however, the EIA expects U.S. consumers who heat their homes with natural gas will see an average savings of 13% in their heating bills this winter compared with last winter.

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Heating-oil prices fall

The savings aren’t limited to natural-gas users. Heating-oil users will probably see costs fall as prices for that fuel decline: In its winter fuels outlook report released in October, the EIA said consumers using heating oil are likely to see a 25% decline in heating-fuel costs.

“Heating oil is getting slammed,” said Phil Flynn, senior market analyst at Price Futures Group.

The El Niño weather phenomenon is mostly to blame for the warmer winter weather.

Usually at this time of year, heating-oil futures US:HOF6 go up in anticipation of higher demand for heating, while gasoline futures US:RBF6 fall in the aftermath of the summer driving season, said Flynn. But right now, the heating oil and gasoline spread is “going the opposite of what you might think should happen in December.”

“Instead of heating oil going up, it is falling because of warmer-than-normal temperatures,” he said. Gasoline futures, meanwhile, “are soaring because of summerlike gasoline demand numbers.”

Low retail gasoline prices boosted demand for the motor fuel to 9.42 million barrels a day for the week ending Dec. 4, from 8.55 million a year ago, EIA data show.

On Monday, gasoline futures settled at $1.256 a gallon, down 2% for the session, but that’s after ending last week with a 0.9% gain. Heating-oil futures ended at $1.128 a gallon, their lowest level since August 2004, after falling nearly 15% last week.

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