Natural gas futures plunge 4% on mild weather outlook

Investing.com - Natural gas futures fell sharply to hit a three-week low during U.S. morning trade on Monday, as forecasts showing mild weather for mid-February weighed on demand expectations for the heating fuel.

Natural gas prices have closely tracked weather forecasts in recent weeks, as traders try to gauge the impact of shifting forecasts on winter heating demand.

On the New York Mercantile Exchange, natural gas futures for delivery in February traded at USD3.305 per million British thermal units during U.S. morning trade, down 4.1% on the day.       

It earlier fell by as much as 4.3% to trade at a session low of USD3.292 per million British thermal units, the weakest level since January 11.

The front-month February contract is due to expire at the end of Tuesday’s trading session. Contract expiration often leads to volatile sessions as market participants look to close out positions or reposition their portfolios.

Meanwhile, the more actively traded contract for March delivery lost 4.2% to trade at USD3.317 per million British thermal units.

Updated weather forecast models released earlier pointed to mostly mild temperatures for mid-February, with forecasts calling for a break in the recent bout of frigid weather that has hit the U.S. Midwest and Northeast in the past two weeks.

The Commodity Weather Group predicted above-normal temperatures in the eastern half of the U.S. from February 7 through February 11.

Bearish speculators are betting on the mild weather reducing winter demand for the heating fuel after forecasts originally called for colder-than-average weather during the period.

Natural gas prices have closely tracked weather forecasts in recent weeks, as traders try to gauge the impact of shifting forecasts on winter heating demand.

The heating season from November through March is the peak demand period for U.S. gas consumption. Nearly 50% of all U.S. households use gas for heating.

Still-high inventory-levels also weighed on prices. Total U.S. natural gas storage stood at 2.996 trillion cubic feet as of last week, 5% below last year’s level, but 12% above the five-year average for this time of year.

Early withdrawal estimates for this Thursday’s storage data range from 196 billion cubic feet to 210 billion cubic feet. Inventories fell by 149 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 178 billion cubic feet.

If withdrawals for the rest of winter season match the five-year average pace, inventories will end the heating season at 2.048 trillion cubic feet, nearly 18% above normal, but 17% below last year's end-winter record of 2.48 trillion cubic feet.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in March shed 0.2% to trade at USD95.67 a barrel, while heating oil for March delivery dipped 0.15% to trade at USD3.044 per gallon.