Natgas Futures Plunge Into Bear Market On Warmer Weather Outlook

Last week we described how “A cold shot of air” was going to blast Boston, New York, Philadelphia, and Washington, D.C., through the weekend, then lead to unseasonably warm temperatures through Jan. 02. Much of the cold weather has already exited the Northeast on Monday, resulting in a plunge in Natgas futures on warmer weather outlooks. 

Front-month gas futures on the New York Mercantile Exchange were down .10 cents, or -4.21%, at $2.231 per million British thermal units (mmBtu) at 12:30 am est. 

Natgas futures stumbling into a bear market.

“(As) the weather last week was colder than normal we would expect a larger than usual storage draw. However, somewhat normal to above normal weather for this week and the holidays would mean reduced demand significantly,” Zhen Zhu, an economist at Oklahoma City-based C.H. Guernsey, told Reuters. 

The Global Forecast System (GFS) shows from Washington, D.C., to New York to Boston, above-trend temperatures will be seen from Dec. 23 through Jan. 01. 

The Northeast heating degree day (HDD) index dips this week and won’t rise above trend until Jan. 02/03. This means that energy demand to heat a structure will decline due to warmer temperatures – more reasons why Natgas futures will remain on a decline through this week, or until weather forecasts show cooler weather is on the way. 

The Lower-48 HDD also shows energy demand across the U.S. to heat a structure will be on the decline for the next ten or so days. 

Traders told Refinitiv that Natgas prices have plunged since early November “due to milder than usual weather and expectations inventories will still rise over the five-year average in the coming weeks. Near-record production enables utilities to leave more gas in storage, wiping away lingering concerns of supply shortages and price spikes during the winter.”