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US natural gas dropped for a second session on the outlook for warmer temperatures across large parts of the country, likely trimming demand for the heating and power-plant fuel.
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Futures for March delivery slipped as much as 9.1% to $3.111 per million British thermal units. With much of the cold blast that hit the Northeast in the rearview mirror, temperatures were expected to be above normal across the Midwest and US South through Feb. 18, according to the private forecaster Commodity Weather Group.
Prices dropped 2.5% on Friday, snapping a three-day gain, after a weekly report by Baker Hughes showed a significant uptick in drilling in the Haynesville shale region in northwest Louisiana and East Texas. A higher rig count typically signals more supply later on, which can weigh on short-term prices.
At the same time, the impact on near-term supply-demand fundamentals posed by the large rig count increase “appears overdone,” Eli Rubin, senior energy analyst at EBW Analytics Group, wrote in a Monday note to clients. This is because the large increase could reflect Baker Hughes simply catching up to the actual rig count, Rubin added. Moreover, “new rig additions are not deployed within a week of extreme cold,” and thus may not have any impact on gas supplies in March, notwithstanding the resulting decline in the March contract, he said.
US natural gas spiked at the end of last month to the highest level in more than three years after a cold snap led to higher demand and disrupted some supply. Futures have since unwound all those gains.
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