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Story by The Wall Street Journal

Natural gas slid to a fresh 16-year low on Thursday as traders increasingly fear warm weather and heavy stockpiles are leading to a glut that will last deep into next year.

Heating demand has been so limited, but production is still going so strong that stockpiles last week—usually solidly into winter heating season—fell by only a third of their average drop for the week, the U.S. Energy Information Administration. The fall was also far less than traders and analysts expected, just 34 billion cubic feet compared with expectations for 41.

Prices whipsawed after the news, and then fell decisively in the afternoon, extending gas’s losing streak to seven sessions, the longest since December 2012. Prices for the front-month January contract settled down 3.5 cents, or 2%, at $1.755 a million British thermal units on the New York Mercantile Exchange.

That is the lowest settlement since March 23, 1999. And it is the lowest inflation-adjusted settlement in the history of Nymex trading, which started for gas in 1990.

A historically strong El Niño weather phenomenon has sharply limited demand for the heating fuel this year just as rampant production had pushed stockpiles to an all-time high. Forecasts have predicted temperatures hitting 70 degrees Fahrenheit in New York on Christmas Eve, a crippling blow to a market reliant on winter heating to drive demand.

“This whole season has been thrown out of whack,” said John Woods, president of JJ Woods Associates and a Nymex trader. “What are we going to have, two months of winter?”

That possibility has caused gas to sell off hard, dropping 25% in the past month alone. Many traders are worried the shortened winter will keep stockpiles bulging far into next year. Stockpiles ended last week 16% above levels from a year ago and 9.1% above the five-year average for the same week, EIA data show.

Early indicators are that next week’s draw from stockpiles could be even smaller, said Teri Viswanath, a natural-gas strategist at BNP Paribas SA in New York. It might be just 10% of what it usually is and the gas industry could double its storage surplus over the winter compared with a year ago, ending March with about 2.3 trillion cubic feet of gas in storage, she said.

“It would appear that the market is braced for a string of relatively light” drawdowns on storage, she said.

Thursday’s retreat is more dramatic considering it came from gains of as much as 3.6% in early trading. But even then many said that was likely just temporary, as a market full of bearish traders closed out positions—briefly buying back in—merely to reset themselves and be prepared before the EIA update.

“The weather is not getting colder,” said Scott LaShelle, executive vice president of gas operations for Great Eastern Energy, a retail supplier. That was “just people taking some risk off the table.”