Forecasts for record warmth pressure US gas prices to 14-year low

By CHRISTINE BUURMA
Bloomberg

Record warmth sent US natural gas prices tumbling to a 14-year low, as December appeared to be a bust for bulls.

Gas slumped as the latest forecasts showed temperatures more than 20 degrees Fahrenheit above normal in parts of the eastern US later this month. Cities from Lexington, Kentucky, to Binghamton, New York, broke temperature records dating back to the 19th century over the weekend, AccuWeather data show. New York City reached a high Sunday of 67 (19 Celsius), a record for the date, beating a mark set in 1923, according to the National Weather Service.

Natural gas prices are collapsing as mild weather dims the prospect of erasing a stockpile surplus that’s the biggest for the time of year since 2012. Supply from shale formations in the US East has overwhelmed demand for the heating fuel, prompting analysts including Credit Suisse Group and Energy Aspects to cut their 2016 price estimates.

“The forecasts are looking even warmer,” said Gene McGillian, a senior analyst and broker at Tradition Energy in Stamford, Connecticut. “There’s a lot of gas in storage, and production levels are still healthy. Without a turnaround in the weather, there’s not much to halt this kind of price slide.”

Year’s Drop

Natural gas for January delivery fell 9.6 cents, or 4.8%, to $1.894/MMBtu on the New York Mercantile Exchange, the lowest settlement since September 2001. Gas is down 34% this year, heading for a second straight annual decline.

Shares of power producers and gas drillers slid as futures tumbled. Southwestern Energy Co. fell 9.7% Monday to the lowest level since 2004, the worst performer in the Standard & Poor’s 500 Index. NRG Energy slumped 9.3%.

Natural gas output is on course to reach a fifth straight annual record this year, even as prices decline, government data show. Production will rise 6.3% to 79.58 billion cubic feet a day as output from the Marcellus and Utica shale formations expands, according to the US Energy Information Administration.

Gas inventories totaled 3.88 trillion cubic feet as of Dec. 4, 6.5% above the five-year average. Withdrawals from storage will be smaller than average as warm weather curtails demand, Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients.

“With mild temperatures still looming through the end of December (and possibly beyond) weekly withdrawals are likely to underperform versus history for several weeks to come,” Chirichella said.

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