Naturalgas settled down -9.34% at 134.90 slumped to the lowest level since June 2012 as abnormally warm weather looks set to persist into November, prices falling nearly 10 percent as supplies rise toward record levels amid expectations that there will be a warm start to the winter. Monday's fall -- the fourth daily decline in a row -- is noteworthy because it comes ahead of winter. Gas for delivery during cooler months tends to cost more than gas in spring, summer, and autumn, when producers bank surplus supplies in salt domes, depleted gasfields and aquifers. The latest weather report showed mild weather across a wide section of the U.S. in the next two weeks, triggering a 9.8 percent plunge in the front-month natural gas contract. The futures ended the session at $2.06 MMBtu, a level last seen in 2012. Gas was being also hit by expectations a record amount of natural gas will soon be in storage. Weekly data show gas storage at 3.81tcf, and the record is 3.929tcf in November 2012. The EIA predicts a peak of 3.956 trillion this November, who projects it to reach more than 4 trillion. The most recent weather report shows above-normal temperatures for the eastern region, a significant user of heating fuels. Meanwhile the National Weather Service forecasts above-average temperatures well into next month, when heating demand normally begins to draw down underground stocks. Last spring, supplies were 55% below the five-year average, indicating producers have more than made up for all of last winter's unusually strong demand.

Summary

Working gas in storage was 3,814 Bcf as of Friday, October 16, 2015, according to EIA estimates. This represents a net increase of 81 Bcf from the previous week. Stocks were 434 Bcf higher than last year at this time and 163 Bcf above the 5-year average of 3,651 Bcf. In the East Region, stocks were 12 Bcf below the 5-year average following net injections of 49 Bcf. Stocks in the Producing Region were 163 Bcf above the 5-year average of 1,166 Bcf after a net injection of 29 Bcf. Stocks in the West Region were 12 Bcf above the 5-year average after a net addition of 3 Bcf. At 3,814 Bcf, total working gas is within the 5-year historical range.

Natural Gas Consumption

EIA's forecast of U.S. total natural gas consumption averages 76.2 billion cubic feet per day (Bcf/d) in 2015 and 76.4 Bcf/d in 2016, compared with 73.1 Bcf/d in 2014. EIA projects natural gas consumption in the power sector to increase by 15.6% in 2015 and then decrease by 2.1% in 2016. Natural gas prices, which are expected to remain below $3 per million British thermal units (MMBtu) through January 2016, support increased use of natural gas for electricity generation in 2015. Industrial sector consumption remains flat in 2015 and increases by 4.2% in 2016, as new industrial projects, particularly in the fertilizer and chemicals sectors, come online late this year and next year, and as industrial consumers continue to experience low natural gas prices. Natural gas consumption in the residential and commercial sectors is projected to decline in both 2015 and 2016.

Natural Gas Production and Trade

EIA expects that marketed natural gas production will increase by 4.2 Bcf/d (5.6%) and by 1.5 Bcf/d (1.9%) in 2015 and 2016, respectively, with increases in the Lower 48 states expected to more than offset continuing production declines in the Gulf of Mexico. Increases in drilling efficiency will continue to support growing natural gas production in the forecast despite relatively low natural gas prices. Most of the growth is expected to come from the Marcellus Shale, as the backlog of uncompleted wells is reduced and as new pipelines come online to deliver Marcellus natural gas to markets in the Northeast.

Increases in domestic natural gas production are expected to reduce demand for natural gas imports from Canada and to support growth in exports to Mexico. Earlier this year, natural gas net imports fell to the lowest monthly level since 1987, averaging 2.3 Bcf/d in both May and June. EIA expects natural gas exports to Mexico, particularly from the Eagle Ford Shale in South Texas, to increase because of growing demand from Mexico's electric power sector coupled with flat natural gas production in Mexico. EIA projects LNG gross exports will increase to an average of 0.79 Bcf/d in 2016, with the startup of a major LNG liquefaction plant in the Lower 48 states at the end of this year.

Natural Gas Inventories

On September 25, natural gas working inventories totaled 3,538 Bcf, 454 Bcf (15%) above the level at the same time in 2014 and 152 Bcf (4%) above the five-year average for that week. EIA projects end-of-October 2015 inventories will total 3,956 Bcf, which would be 158 Bcf above the five-year average, and the highest end-of-October level on record.

Goldman Cuts U.S. NatGas Price Forecast Again: Goldman Sachs reduced their outlook for domestic natural gas prices for the second time since late July, as output is proving to be much stronger than anticipated and is seen eclipsing demand growth by a wide margin. In late July they expected 4Q2015 prices to average $2.70/MMBtu. But prices aren't holding up. "The U.S. gas market has remained even more oversupplied than we forecast in late July," report said. "Since then, U.S. inventories have built by 850 Bcf (weather adjusted) versus our 805 Bcf forecast (July 31 to Oct. 9). As a result, inventories are currently at their highest level for this time of the year since 2012 and prices have fallen to $2.50/MMBtu, below our 4Q2015 $2.70/MMBtu forecast."

Exports, coal plant retirements and new petrochemical plants should support demand growth in 2016, while associated gas continues to decline. However, continued robust growth in the Northeast, limited declines in base production and a more oversupplied 2015 gas market lead to instead raise 2016 coal-to-gas (C2G) switching requirements. As a result, now are forecasting 2016 NYME gas prices to average $2.85/MMBtu versus a July forecast of $3.00 and be below the forward curve through 2Q2016. US gas production growth is looking stronger than expected. Goldman predicts growth of 4.2 Bcf/d this year, compared with an earlier forecast of 3.8 Bcf/d, while demand growth is seen at around 3.5 Bcf/d versus 3.6 Bcf/d. C2G switching now is estimated at 3.9 Bcf/d versus 3.6 Bcf/d. C2G switching is forecast at 2.2 Bcf/d net in 2016, up from 1.7 Bcf/d previously.

Goldman's forecast for the end of injection season inventory has been reset to 4.0 Tcf from 3.915 Tcf, while the end-of-March forecast has risen to 2.072 Tcf from 1.91 Tcf. By the end of October 2016, inventory is seen at 4.018 Tcf versus a previous forecast of 3.84 Tcf. Monthly inventory data posted by the EIA "point to a balance over July-September [that is] 0.7 Bcf/d softer than we had forecast, driven by both resilient production and disappointing demand," said. "Industrial demand has continued to disappoint, flat since June, down 0.4 Bcf/d from last year's level in 3Q2015 and 0.7 Bcf/d below our forecast. In turn, production has continued to set new highs," up 0.5 Bcf/d versus 2Q2015 and plus-0.8 Bcf/d versus a previous forecast.

Associated gas production is forecast to continue to decline, but the Northeast should more than make up the difference. Given the expected large increase in Northeast pipeline takeaway capacity over the next few months, "we expect prices to remain near their current low levels into year-end," the Goldman team said. "Since we expect Northeast production to only fill 70% of new local offtake capacity in November-December, risks to our production forecasts are skewed to the upside."

There's another downside, too. Even if the forecast is correct, gas inventories could increase more in November if weather remains milder-than-normal, as is forecast with the El Nino weather pattern taking shape. "In fact, while extended forecasts point to only slightly warmer than normal months of November and December, the ongoing strong El Nino weather pattern creates risk of potentially warmer weather. As a result, we see risks as clearly skewed to another leg lower in gas prices in coming weeks." Moody's Investors Service also has a lower-for-longer price assumption for North American natural gas. The credit ratings firm reduced its price assumptions at Henry Hub by 25 cents overall, to $2.75/MMBtu in 2016; $3.00 in 2017 and $3.25/ in 2018. Moody's also lowered its assumptions for natural gas liquids (NGLs), which tend to move in line with oil prices. The rating agency now forecasts NGL prices of $18/boe in 2016, $20 in 2017 and $22 in 2018, with a medium-term price of $25/bbl.

Technical Outlook: Technically market is getting support at 148.00 and below same could see a test of 142.00 level, and resistance is now likely to be seen at 160.00, a move above could see prices testing 168.00.