U.S. natural gas futures plunged to a nine-month low on Tuesday after the lower-priced March contract became the front-month and on forecasts for milder weather and lower heating demand over the next two weeks than previously expected.
Analysts also noted that U.S. industrial demand for gas was depressed, in part because of the ongoing outage of a liquefaction unit at Freeport LNG’s export plant in Texas.
The Freeport outage leaves more gas in the country when U.S. output is rising as wells return to service after freezing during extreme cold in mid-January.
That Arctic freeze boosted gas demand to a daily record high and cut both U.S. gas output and feedgas to liquefied natural gas (LNG) exports plants to one-year lows.
On its first day as the front month, gas futures NGc1 for March delivery on the New York Mercantile Exchange (NYMEX) rose 3.2 cents, or 1.6%, from where that contract closed on Monday to $2.086 per million British thermal units (mmBtu) at 9:26 a.m. EST (1426 GMT).
That, however, was down about 16% from where the February contract closed when it was still the front month on Monday, and put the front month on track for its lowest close since April 13, 2023.
That also put the front month on track for its biggest daily percentage drop since it fell by 26.0% on Jan. 28, 2022, and pushed the contract into technically oversold territory for the first time since mid December.
Rising price volatility has increased interest in gas trading in recent weeks, boosting open interest on the NYMEX to a 28-month high of 1.45 million contracts on Jan. 26.
SUPPLY AND DEMAND
Financial company LSEG said gas output in the Lower 48 states fell to an average of 103.7 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 108.0 bcfd in December.
On a daily basis, however, gas output was on track to jump 15.1 bcfd from Jan. 17-30 to a preliminary three-week high of 107.1 bcfd on Monday.
That was almost enough to replace the 17.2 bcfd drop in output from Jan. 8-16 to a 12-month low of 90.5 bcfd on Jan. 16, which was due primarily to freeze-offs and other cold weather events.
Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal through at least Feb. 14.
LSEG forecast U.S. gas demand in the Lower 48, including exports, would remain around 125.4 bcfd this week and next. The forecast for this week was higher than LSEG’s outlook on Monday, while its forecast for next week was lower.
Gas flows to the seven big U.S. LNG export plants fell to an average of 13.9 bcfd so far in January, down from a monthly record of 14.7 bcfd in December.
Analysts said U.S. LNG feedgas would likely not return to record levels until U.S. energy firm Freeport LNG’s export plant in Texas returns to full power likely in mid- to late-February.
Source: Reuters (Reporting by Scott DiSavino; editing by Barbara Lewis)