The NYMEX January natural gas futures contract continued its downward slide Tuesday, dropping 6.8 cents to settle at $1.826/MMBtu as warm weather forecasts continue to put significant pressure on the contract.
The National Weather Service's six- to 10-day forecast calls for unusually warm weather in the Northeast, Upper Midwest, Midcontinent and Southeast.
Its eight- to 14-day outlook calls for above-average temperatures in the Northeast, Mid-Atlantic and Upper Midwest. Below-average temperatures are expected in the western third of the country.
As a result of the mild weather in December, average US demand has been just 76.6 Bcf/d, 6.4 Bcf/d lower compared with the same period a year ago. Gene McGillian, senior analyst for Tradition Energy, said in an interview that these are dark days for the gas market.
"The question should be where the bottom of this slide is," McGillian said, adding that he thinks the next level of support could be at $1.76/MMBtu, primarily because low storage withdrawals though the winter could leave large amounts of gas in the ground, possibly as much as 2.5 Tcf. "Ending the winter with this much gas could scare the market and set up fears of oversupply through all of 2016," McGillian said.
Offering a more optimistic view, Aaron Calder, an analyst at Gelber & Associates, wrote in a note to clients that gas prices may rebound, saying that the market has already priced in the idea that warm weather will continue indefinitely. "We believe this week offers a strong buying opportunity. And urge clients to take advantage of these low prices," Calder said in his note. After declining over 16 cents in the past two trading sessions, the January contract closed lower than any other prompt-month contract since September 26, 2001, when it settled at $1.830/MMBtu.
