U.S. natural gas futures dropped about 6% to an 18-month low on Wednesday on forecasts for warmer weather and less heating demand in late January than previously expected.
Whenever the Freeport plant returns, U.S. gas demand will jump, which should cause prices to rise. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of U.S. daily production.
Front-month gas futures for February delivery were down 20.9 cents, or 5.8%, to $3.377 per million British thermal units (mmBtu) at 8:18 a.m. EST (1318 GMT), putting the contract on track for its lowest close since June 23, 2021.
That price drop pushed the contract back into technically oversold territory with a relative strength index (RSI) below 30 for the 12th time in 14 days.
“The last contract on the winter strip (March) should never trade at a discount to the first month on the summer strip (April) … but that is what is threatening,” Bob Yawger, director of energy futures at Mizuho, said last week.
The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Traders said the biggest market uncertainty remains when the Freeport plant will return after shutting due to a fire on June 8, 2022.
to the Freeport plant on Jan. 14, according to data from Refinitiv, but was only being used to maintain the flare system, according to a source familiar with the plant.
Although Freeport LNG says the plant is still on track to restart in the second half of January, pending regulatory approvals, that restart timeline has been delayed many times from October to November to December and most recently to January.
Freeport has not yet filed a request with federal regulators to restart the plant, according to a source familiar with the company’s filings.
With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 121.4 bcfd this week to 128.7 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.
Source: Reuters