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Natural Gas Rallies on First Supply Withdrawal of Season

November 21, 2019 at 16:29 by Andrew Moran

Natural gas futures are rallying on Thursday after the US government reported a larger than expected decline in weekly inventories. The drop in supplies is being attributed to freezing temperatures that have hit most of North America, causing households to crank up the heat and raise demand for the energy commodity.

December natural gas futures climbed $0.035, or 1.43%, to $2.595 per million British thermal units (btu) at 15:23 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are on track for a weekly slide of 1.5%, adding to their year-to-date losses of nearly 10%.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas tumbled by 94 billion cubic feet for the week ending November 8, which represents the first decline of the withdrawal season. The market had penciled in a decrease of 91 billion. In total, US supplies stand at 3.638 trillion cubic feet, up 506 billion cubic feet from the same time a year ago. However, they are 60 billion cubic feet below the five-year average.

The bigger-than-expected withdrawal is due to the below-seasonal temperatures that have gripped most parts of the US and Canada. When the winter-like conditions happen, they are typically a boon for natural gas prices since it increases demand and reduces inventories.

But analysts are anticipating a reversal next week because mild temperatures have returned. Temperatures are forecast to moderate over the next several days, giving households some reprieve on their energy bills.

A new report from Forbes magazine suggests that domestic output should slow down next year. In the last decade, natural gas production has surged 60%, even with prices trading near multi-year lows. It is projected that capital expenditure spending will slump, particularly in the Appalachia region, which is expected to see production growth slow from the current 8% to 3%. Instead, companies will concentrate more on balance sheets and dividends, and this might give prices a boost.

In other energy markets, January West Texas Intermediate (WTI) crude oil futures rose $1.08, or 1.89%, to $58.09 per barrel. January Brent crude futures advanced $1.20, or 1.92%, to $63.60 a barrel. December gasoline futures jumped $0.0325, or 1.77%, to $1.69 per gallon. December heating oil futures soared $0.04, or 2.05%, to $1.93 per gallon.

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