U.S. natural gas futures fell on Friday, as traders took profits after prices rose to a two-month high early, supported by higher demand forecasts and a drop in output in recent days due to Hurricane Francine.
Front-month gas futures NGc1 for October delivery on the New York Mercantile Exchange fell by 5.2 cents, or about 2.2%, to settle at $2.305 per million British thermal units (mmBtu).
“It looks like there was some profit taking, we had a pretty decent rally this week and especially with the tightness in market expectations, smaller injection that we saw from the storage report yesterday, I think that created some side interest and I think that what we saw here ahead of the weekend was people just taking off some risk,” said Robert DiDona of Energy Ventures Analysis.
During the session, the contract hit its highest level since July 8. For the week, it was up 1%, the third consecutive weekly gain.
“It’s all about the storage scrapes that’s driving the market right now. So we have a lot of things that we can focus on and say maybe it’s low production, high exports to Mexico and increasing demand for power burns. But the reality is less gas is going into the ground towards the end of the storage injection season,” DiDona said.
The U.S. Energy Information Administration (EIA) said utilities added 40 billion cubic feet (bcf) of gas into storage during the week ended Sept. 6.
That was lower than the 48-bcf build analysts forecast in a Reuters poll and compares with an injection of 50 bcf during the same week a year ago and a five-year average (2019-2023) increase of 67 bcf for this time of year.
Major U.S. natural gas producers are preparing to further curtail production in the second half of 2024, after prices sank nearly 40% over the past two months.
“Estimates by the government suggest production curtailed by almost half but we can also note that the predominance of shale output continues to reduce the importance of off-shore GOM supply,” energy advisory firm Ritterbusch and Associates said in a note.
About 53% of natural gas output in the U.S. Gulf of Mexico was shut in the wake of Storm Francine, which was downgraded on Thursday to a post-tropical cyclone by the U.S. National Hurricane Center.
Financial firm LSEG said gas output in the Lower 48 U.S. states slid to an average of 102.1 billion cubic feet per day (bcfd) so far in September, down from 103.2 bcfd in August.
Meanwhile, LSEG forecast average gas demand in the Lower 48 U.S. states, including exports, will rise from 99.4 bcfd this week to 100.3 bcfd next week.
The U.S. Gulf of Mexico accounts for about 15% of all domestic oil production and 2% of natural gas output, according to federal data. Storm-related disruptions have the potential to affect U.S. oil supplies, leading to pressure on energy prices.
LSEG forecast average gas supply in the Lower 48, including exports, will rise marginally from 109.3 bcfd this week to 109.7 bcfd next week.
Source: Reuters (Reporting by Sherin Elizabeth Varghese in Bengaluru; editing by Jonathan Oatis and David Gregorio)