U.S. natgas futures fall 5% with oil decline ahead of storage report

U.S. natural gas futures fell about 5% with a 6% drop in oil prices despite forecasts for cooler weather and higher heating demand in the United States over the next two weeks than earlier expected.

Traders noted that gas price decline came ahead of a federal report expected to show a smaller-than-usual storage withdrawal last week.

Analysts said utilities likely pulled 59 billion cubic feet (bcf) of gas from storage during the week ended March 6. That compares with a decline of 164 bcf during the same week last year and a five-year (2015-19) average reduction of 99 bcf for the period.

If correct, the decrease for the week ended March 6 would bring stockpiles to 2.032 trillion cubic feet (tcf), 11.9% above the five-year average of 1.816 tcf for this time of year. 

The U.S. Energy Information Administration will release its weekly storage report at 10:30 a.m. EDT (1430 GMT) on Thursday.

Front-month gas futures for April delivery on the New York Mercantile Exchange fell 9 cents, or 4.8%, to $1.788 per million British thermal units (mmBtu) at 8:48 a.m. EDT (1248 GMT). 

Price swings earlier in the week caused gas traders to boost total futures volume on the NYMEX to 1,039,442 contracts on March 10, the highest since November 2018 when trading hit a record high of more than 1.6 million contracts as prices jumped 18% one day before plunging 17% the next. 

Those big price swings also caused at-the-money implied volatility for the front-month to jump to 53.8%, its highest since December. That is an increase of more than 50% since volatility fell to a recent low in late February. 

Oil prices dropped on Thursday following surprise travel restrictions imposed by U.S. President Donald Trump in an attempt to halt the spread of coronavirus after the World Health Organization described the outbreak as a pandemic.

Earlier in the week gas futures jumped over 13% on expectations the oil price collapse would cause drillers to cut back on oil and associated gas production in shale basins like the Permian in West Texas and eastern New Mexico, allowing demand to absorb some of the gas supply glut that has built up in recent years.

Overall, gas prices were down 37% since hitting an eight-month high of $2.905 per mmBtu in early November because near-record production and mild winter weather enabled utilities to leave more gas in storage, making fuel shortages and price spikes unlikely.

 

 

 (Reporting by Scott DiSavino; Editing by Bernadette Baum)

 

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