Natural gas prices fell Monday as warm winter weather so far in the northeast could lead to an oversupply of the resource.
Natural gas contracts for February delivery fell 12 cents to $3.23 per million British thermal units in trading on the New York Mercantile Exchange.
Natural gas prices fell to decade lows over the last year as production boomed. Consumption of the fuel, used for power generation, home heating and manufacturing, has not cut into surpluses substantially.
Natural gas producers had hoped for a cold winter across the nation, particularly in the Northeast, where winter consumption of natural gas is the highest.
But so far the winter has been warmer than average, with a warm spell in the Northeast forecast to continue over much of the next two weeks, said Mike Halpert, deputy director of the National Oceanic and Atmospheric Administration’s Climate Prediction Center.
By mid-January, which the center considers the midpoint of the winter, weather in the northeast and across the nation likely will have been warmer than normal, Halpert said.
Beyond the next two weeks, the forecast is more uncertain because of a lack of strong climate indicators, he said. Winter weather in the northeast can fluctuate wildly, with cold weather still a possibility.
A warm winter probably will mean lower use of natural gas, which will leave large quantities in storage as wells continue to produce natural gas.
An oversupply most likely will push prices lower. That is what happened a year ago, when a warm winter led to an oversupply of gas that sent prices falling to around $1.90 per million British thermal units.
Quantities of natural gas in U.S. underground storage in recent weeks have held above levels from a year ago.
The most recent count, on Dec. 21, showed 3.642 trillion cubic feet of available natural gas in underground storage, according to data from the U.S. Energy Information Administration. A year earlier, on Dec. 23, 2011, storage totaled 3.548 trillion cubic feet.
Although natural gas producers have cut back on the number of rigs drilling for gas because of the low prices, some rigs are still expected to be active this year and others were recently winding down operations.