Natural gas futures plunged 9.5 percent Tuesday as the prospects for a last winter freeze faded, and traders were looking forward to the possibility of El Nino this summer.
"For the most part, winter is pretty much done," said Josh Senechal, Genscape meteorologist. He said there is the potential for a brief cold spell moving into the East this weekend bringing temperatures closer to normal, but otherwise the outlook for the East and Midwest is warmer weather.
Natural gas futures for March plummeted 9.5 percent to $2.56 per MMBtu. Futures were nearly 1 percent higher Wednesday.
Natural gas was down about 7 percent last week on the combination of strong supply and warm weather and is now 35 percent below the winter peak late last year. Gas in storage is also running above the five-year average.
Analysts, however, say the market has not bottomed, with $2.50 per MMBtu as the next near-term target with $2.25 to $2.30 in sight. According to analytics firm Kensho, in the week after a one-day 9 percent decline, natural gas tends to continue sliding, with further losses 70 percent of the time and a net decline of 1.7 percent. The market has experienced 13 such declines since 2005.
"A few weeks back, there were some model indications that we were going to have cooler conditions developing later in the month. … Model guidance is definitely warmer," said Senechal. He said East Coast temperatures are running five to eight degrees Fahrenheit above normal.
The only area that's going to see colder conditions is the Northern Plains and Pacific Northwest. That's going to be the focus for some colder variability," said Senechal.
Meteorologists also see signs that an El Nino condition is developing in the Pacific, a weather pattern created by warmer water temperatures in the Pacific. El Nino creates more disturbances in the Pacific but tends to make for cooler summers on the east coast, another negative for natural gas consumption
"We have noticed that [surface] temperatures in key El Nino region flipped from below average to above average in just the last week," said Josh Meisel, meteorologist at Bespoke Weather. Meisel said the El Nino could be weak, but it also has a chance of being moderate.
"It's important to point out if it's a weak El Nino … there will still be the risk of a hot summer," he said, adding that would provide demand from utilities as they meet air conditioning demand.
As for natural gas, the market Tuesday was reacting to the near-term weather outlook much more than the uncertainty of El Nino, he said. If the season were more normal, prices could be closer to $3.50 per MMBtu.
"In the next few days, we're expecting to see natural gas demand fall so dramatically that we're expecting to see storage injections, which you typically don't get for another month. It's rare to see during heating season," said Meisel.
John Kilduff of Again Capital agreed some regions could see storage injections. Gas is usually put in storage when the heating season ends. He said, however, he expects a net withdraw when the government reports supply data Thursday.
Last week, the government reported natural gas in storage was 2.4 trillion cubic, 303 BCF less than last year at the same time. However, it's still 87 BCF — or about 3.5 percent — above the five-year average of 2,358 BCF.
"Whatever strength was left in this market got destroyed by the this weather pattern. Just two weeks ago, some of the models were showing a possibly cold March, and that's over," said Kilduff.
Meisel said the market is "hunting for demand" and low gas prices could drive some customers away from coal. That could create a demand pickup. Meisel said there is a chance for some points where temperatures could return to normal, but not many and the overall pattern for the rest of the winter is warmer.
Disclosure: CNBC's parent, NBC Universal is a minority stakeholder in Kensho.