U.S. natural gas futures dropped about 6% in volatile trade on Friday as higher prices in recent weeks have finally prompted producers to start boosting output and on forecasts for less cold weather over the next two weeks than previously expected.
After closing at a one-year high on Thursday, front-month gas futures NGc1 for December delivery on the New York Mercantile Exchange fell 21.0 cents, or 6.3%, to settle at $3.129 per million British thermal units (mmBtu).
Despite Friday’s price decline, the front-month was still up about 11%, putting it up for a fifth week in a row for the first time since September. During those five weeks, the contract has gained about 39%.
Friday’s price drop also pushed the front-month out of technically overbought territory for the first time in three days, while extreme price swings seen so far this week boosted the contract’s 30-day implied volatility NGATMIV to 74.7%, its highest since January.
The market uses implied volatility to estimate likely price changes in the future when pricing options contracts. At-the-money 30-day implied volatility has averaged 59.6% so far in 2024, down from 70.3% in 2023 and a five-year (2019-2023) average of 60.1%.
In the spot market, meanwhile, the coming of wintry weather across much of the U.S. and Canada caused gas prices to rise to their highest levels since January in several regions, including the U.S. Henry Hub NG-W-HH-SNL benchmark in Louisiana, New York NG-CG-NY-SNL, Chicago NG-CG-CH-SNL, the Eastern Gas South hub NG-PCN-APP-SNL in Pennsylvania and AECO NG-ASH-ALB-SNL in Alberta.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states eased to 101.0 billion cubic feet per day so far in November, down from 101.1 bcfd in October. That compares with a record 105.3 bcfd in December 2023.
But on a daily basis, output over the past couple of days was on track to jump by around 1.4 bcfd to a preliminary 11-week high of 102.8 bcfd on Friday.
Analysts expect producers will boost output in 2025 following a series of production cuts this year, as rising demand from liquefied natural gas export plants is expected to increase prices that had fallen to multi-decade lows. Average spot monthly prices at the Henry Hub fell to a 32-year low in March and have remained soft since then.
Meteorologists projected weather in the Lower 48 will remain mostly near normal through Nov. 27 before turning colder than normal from Nov. 28-Dec. 7.
With colder weather coming, LSEG forecast average gas demand in the Lower 48, including exports, would jump from 108.0 bcfd this week to 116.5 bcfd next week and 133.9 bcfd in two weeks.
The amount of gas flowing to the seven big operating U.S. LNG export plants rose to an average of 13.5 bcfd so far in November, up from 13.1 bcfd in October. That compares with a monthly record high of 14.7 bcfd in December 2023.
The U.S. became the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices feed demand for more exports due in part to supply disruptions and sanctions linked to Russia’s invasion of Ukraine in February 2022.
Gas prices traded around $14 per mmBtu at the Dutch Title Transfer Facility benchmark in Europe TRNLTTFMc1 and near an 11-month high of $15 at the Japan-Korea Marker JKMc1 benchmark in Asia.
Source: Reuters (Reporting by Scott DiSavino; editing by Jonathan Oatis and Matthew Lewis)