Natural gas sinks to YTD lows, extending downward slide despite cold blast (NYSEARCA:UNG)

U.S. natural gas futures fell Friday to their lowest settlement since the end of December, as traders look beyond this week’s frigid winter conditions across much of the country to warmer forecasts for later this month that could reduce demand.

While it may not feel like it this week, most of the winter has been unusually mild across North America; last year’s winter also was warmer than average, leading to less demand and lower consumption, which combined with record high natural gas production drove prices lower and contributed to rising amounts of natural gas inventories in storage.

“Storage is at really high levels, [so] you need either lower production or you need a weather normalization to reduce the gas in storage, and that takes time,” GLJ analyst Leonard Herchen told Bloomberg, adding that the warmer weather expected in late January and early February likely will weigh down natgas prices even more.

The abbreviated week saw two weeks of gains wiped out, as front-month Nymex natural gas (NG1:COM) for February delivery finished -23.9% to $2.519/MMBtu, the largest one week percentage decline since December 2021 and well off last week’s two-month highs.

The week was a continuation of last year’s downward trend that saw the average U.S. natgas price plunge 62% in 2023 to average $2.57/MMBtu.

ETFs: (NYSEARCA:UNG), (BOIL), (KOLD), (UNL), (FCG)

With less cold weather in the forecast, data provider LSEG said it now sees U.S. gas demand in the Lower 48 states, excluding exports, dropping to 141.5B cf/day next week and 123.8B cf/day in two weeks from 155B cf/day this week.

Total daily gas demand, excluding exports, surged to a record 168.4B cf/day on January 16, topping the previous all-time high of 162.5B cf/day during Winter Storm Elliott in December 2022, LSEG also reported.

Gas flows to the top seven U.S. liquefied natural gas export terminals fell to an average of 13.9B cf/day so far in January, down from a monthly record of 14.7B cf/day in December.