Natural gas futures plunged sharply lower last week after forecasts for a warm start to December raised concerns over whether the U.S. will experience its third straight year of mild winter temperatures. Prices slid the most since late February with most of the loss taking place on Friday.
January Natural Gas futures settled at $2.916, down $0.275 or -8.62%.
The price action late in the week was primarily driven by a midday update to the government’s Global Forecast System weather model which indicated a “much too warm” pattern through December 6, despite a couple of cool shots across the northern tier of the country, according to NatGasWeather.com.
In other news, inventories totaled 3.726 trillion cubic feet as of November 17, according to the Energy Information Administration. Stockpiles are 3.1 percent below the five-year average and 7.9 percent below the year earlier.
Forecast
Bullish investors learned last week that even with stockpiles below their 5-year and 1-year averages, natural gas prices will have a hard time rallying without cold weather.
At the start of November, bullish investors bet on cooler temperatures this year after two balmy winters in a row. They expected to see an increase in heating demand which would then burn up stockpiles. However, the arrival of above-average temperatures for this time of year, put an end to their plans, wiping out all of their monthly gains.
While record exports of U.S. gas to Mexico and overseas may help slow down the price decline, increased production from shale basins have also reached an all-time high. This could exert further downside pressure next week.
This week will be all about the weather and the forecast shows no days where temperatures are at least significantly below normal in the 15-day forecast.
We may see a few periodic short-covering rallies over the near-term, however, they will likely be met with renewed shorting pressure unless winter finally arrives with a vengeance.
This article was originally posted on FX Empire