U.S. natural gas futures climbed about 2% on Thursday on expectations the hottest weather in three years – expected early next week – will cause the amount of gas power generators burn to soar to keep air conditioners humming.
Front-month gas futures for August delivery on the New York Mercantile Exchange rose 5.8 cents, or 1.9%, to $3.135 per million British thermal units. On Wednesday, the contract closed at its lowest price since April 25, putting it in technically oversold territory for the first time since mid-May.
The increase occurred before a federal storage report on Thursday that is expected to show energy firms added a near-normal 33 billion cubic feet (bcf) of gas into storage during the week ended July 18.
That compares with an increase of 20 bcf during the same week last year and an average of 30 bcf over the 2020-2024 period.
If correct, that build would leave gas stockpiles about 6% above the five-year normal for this time of year.
Looking ahead, the premium of futures for September over August rose to a record high, a sign the market was giving up on hot summer weather in August that could cause gas prices to soar next month.
The U.S. National Hurricane Center (NHC) said a tropical system in the Gulf of Mexico had a 10% chance of strengthening into a tropical cyclone over the next week.
Even though Gulf storms can boost prices by knocking gas production out of service, analysts have noted that storms are more likely to cut demand and prices by shutting LNG export plants and knocking out power to millions of homes and businesses, which reduces the amount of gas that electric generators need to burn.
That’s because only about 2% of all U.S. gas comes from the federal offshore Gulf of Mexico.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states has risen to 107.3 billion cubic feet per day 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 to a preliminary two-week low of 106.2 bcfd on Thursday since hitting a daily record high of 108.5 bcfd on July 18. Analysts have noted that preliminary data is often revised later in the day.
Meteorologists forecast the weather in the Lower 48 would remain mostly hotter than normal through at least August 8. The hottest days of the summer are expected early next week.
Temperatures across the country will average around 82.4 degrees Fahrenheit (28.0 degrees Celsius) on July 28 and 82.8 F on July 29. If correct, that will exceed the summer’s current hottest daily average of 80.3 F on June 24 but would remain just shy of the daily average record high of 83.0 F on July 20, 2022, according to data from financial firm LSEG going back to 2018.
LSEG forecast average gas demand in the Lower 48 states, including exports, will rise from 105.9 bcfd this week to 110.1 bcfd next week. Those forecasts were similar to LSEG’s outlook on Tuesday.
The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 15.7 bcfd so far in July, as liquefaction units at some of the facilities slowly exited 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.
Source: Reuters