Warmer Weather Forecasts Lowered Natural Gas Prices 7%

New forecasts for a mild winter sent natural gas prices back to the mid-$3 area.

The February gas contract on the Henry Hub of the New York Mercantile Exchange settled at $3.639 per mmBtu on Tuesday, down 27 cents, or 7%.

The drop follows Monday's 11% and 5.4% gas hikes. The benchmark gas contract is down 2% week-to-date and 52% in the past three weeks.

Gelber & Associates, a Houston-based energy markets consultancy, claimed market bears are selling NYMEX front-month natural gas contracts. "Sellers have regained control, driving prices to the low $3.30s/mmBtu as market players predict unseasonably high temperatures in the U.S.

Natural gas contracts fell precipitously in December after rising rapidly for much of 2022 due to weather extremes and a supply bottleneck caused by political and other barriers to Russian gas output after the Ukraine incursion. Unexpectedly mild winter temperatures have left European and American heating markets well-stocked.

According to the Gelber research, extremely mild temperatures through mid-January could lead to further gas price drops.

According to the Global Forecast System (GFS) and the European (ECMWF) models, the near-term temperature picture is bleak for mid-January, with daily gas storage withdrawals likely to be below the five-year average for two weeks.

The stoppage of the Freeport liquefaction facility in Texas has also reduced LNG exports by 2 bcf per day.

"For gas market bulls, colder weather in Europe would be beneficial," Gelber said. Similar to the U.S., European temperatures have been unusually warm since December.

Compared to $80-$100 per mmBtu last summer, European gas prices at the TTF point in the Netherlands are $21-$24.

"It's not out of the question that NYMEX gas futures may return to $5 [per mmBtu] or higher in the near future," Gelber wrote, "but it will require enormous amounts of Arctic air to dominate the nation for several weeks." Any weather forecast model regressions toward a lengthier period of warmth would send NYMEX gas futures to new lows.