U.S. natural gas futures eased about 1% to a one-week low on Tuesday on low cash prices, an increase in output so far this month and higher-than-normal amounts of gas in storage.
That price decline occurred despite a drop in gas output in recent days and forecasts for the weather to remain hotter than normal through late July, which should lead power generators to keep burning high amounts of gas to meet demand for air conditioning.
Front-month gas futures for August delivery on the New York Mercantile Exchange (NYMEX) fell 2.8 cents, or 0.8%, to $3.384 per million British thermal units (mmBtu), keeping the contract on track for its lowest close since June 26.
With gas futures down about 8% last week, speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental exchanges for the first time in three weeks to their lowest levels since mid-June, the U.S. Commodity Futures Trading Commission’s Commitments of Traders report showed.
One factor weighing on futures prices over the past few months has been low cash prices. Next-day gas at the U.S. Henry Hub benchmark (NG-W-HH-SNL) in Louisiana traded around $3.24 per mmBtu. Spot contracts have been below front-month futures every day since late April.
Analysts have said that so long as spot prices remain far enough below front-month futures
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to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
Another factor weighing on futures prices in recent months has been the growing surplus of gas in storage over the five-year normal level for this time of year. Analysts projected energy firms added more gas into storage than usual for an 11th time in 12 weeks during the week ended July 4.
Gas stockpiles were already about 6% above normal levels for this time of year.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states has risen to 106.8 billion cubic feet per day (bcfd) so far in July, up from a monthly record high of 106.4 bcfd in June.
On a daily basis, however, output was on track to drop by around 2.8 bcfd over the past five days to a preliminary four-week low of 104.7 bcfd on Tuesday. Analysts have noted that preliminary data is often revised later in the day.
Meteorologists forecast weather across the Lower 48 states will remain mostly warmer than normal through at least July 23.
With hotter weather expected, LSEG forecast average gas demand in the Lower 48, including exports, would rise from 105.9 bcfd this week to 107.7 bcfd next week. Those forecasts were similar to LSEG’s outlook on Monday.
The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 15.5 bcfd so far in July as liquefaction units at some plants slowly exit maintenance reductions and unexpected outages. That was up from 14.3 bcfd in June and 15.0 bcfd in May, but remained below the monthly record high of 16.0 bcfd in April.
The U.S. became the world’s biggest LNG supplier in 2023, surpassing Australia and Qatar, as surging global prices fed demand for more exports, due in part to supply disruptions and sanctions linked to Russia’s 2022 invasion of Ukraine.
Gas was trading around $12 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $13 at the Japan Korea Marker (JKM) (JKMc1) benchmark in Asia.
Source: Reuters