Slow start to US heating season keeps downward pressure on NYMEX Henry Hub

US residential-commercial heating demand is trending at its lowest in six years in December as mild weather across the Lower 48 states continues to put broad downward pressure on the gas market.

In December, demand from homes and businesses has averaged just 35.9 Bcf/d, marking the lowest month-to-date average since 2015, data compiled by S&P Global Platts Analytics shows.

Mild weather is entirely to blame for the weakness. In December, the US population-weighted temperature has averaged a balmy 48.4 degrees Fahrenheit – also the warmest on record since 2015.

As the gas market enters winter's historically coldest period stretching from December to February, sentiment in the futures and forwards markets often become hyper-responsive to changes in the weather and weather forecasts, which can dramatically impact not only heating demand but also storage levels.

This December is no exception.

Over the past two weeks, mild temperatures and balmy forecasts have fueled a more-than 20% decline in the NYMEX prompt-month price with this winter's supply and demand outlooks on shifting ground.

Since late November, prices have dipped to the upper-$3s, down from over $5/MMBtu. On Dec. 14, the prompt-month contract was off about 5 cents on the day to end trading around $3.75/MMBtu, data from CME Group and S&P Global Platts showed.

Outlook

Over the next week, the US population-weighted temperature is expected to remain mild at an average 46.7 degrees. As a result, heating demand should continue trending near the bottom of its five-year historical range, averaging just 39.1 Bcf/d, according to an updated forecast from Platts Analytics.

Through late December, short-term weather forecasts offers little optimism for any major turnaround in the trend. In the National Weather Service's latest eight- to 14-day outlook, states stretching from the Rockies and Desert Southwest all the way to the East Coast face elevated probabilities for unseasonably mild temperatures.

Storage

While mild weather has kept heating demand at historic lows, it has also given gas storage inventories a mid-heating-season reprieve – potentially altering the longer-term supply outlook even beyond winter.

As of the week ended Dec. 3, US inventories are now estimated at 3.505 Tcf – just 90 Bcf below the prior five-year average. In early September, the summer's deficit reached its highest at 235 Bcf below the prior five-year average, data from the US Energy Information Administration shows.

Assuming average inventory drawdowns prevail over the balance of winter, US stocks could enter injection season at close 1.7 Tcf – potentially enough to keep storage demand low well into the summer months.