U.S. natural gas futures fell about 6% on Wednesday to a 21-month low on forecasts for less cold weather and lower heating demand over the next two weeks than previously expected.
That price decline came even though output over the past week was on track to drop about 4.0 billion cubic feet per day (bcfd) to a preliminary one-month low of 93.7 bcfd as winter storms freeze oil and gas wells – known as freeze-offs in the energy industry – in several states, including Texas, Oklahoma, New Mexico and Pennsylvania.
Gas prices have been depressed for weeks due in part to expectations Freeport LNG’s liquefied natural gas (LNG) export plant in Texas was still at least a month away from pulling in big amounts of gas to produce LNG.
Gas prices were also depressed due to warm weather seen so far this year.
Despite extreme cold this week, temperatures in the U.S. Lower 48 states averaged about 41.8 degrees Fahrenheit (5.7 Celsius) in January, the warmest for the month since January 2006 when the mercury averaged a record 42.8 F, according to data from Refinitiv and the federal government.
Front-month gas futures for March delivery fell 16 cents, or 6.0%, to $2.524 per million British thermal units (mmBtu) at 11:47 a.m. EST (1647 GMT), putting the contract on track for its lowest close since April 2021.
That kept the contract in oversold territory with a relative strength index (RSI) below 30 for a third day in a row and the 16th time so far this year.
In the spot market, gas prices for Wednesday at the Henry Hub benchmark in Louisiana fell about 6% to $2.65 per mmBtu, their lowest since April 2021.
Meteorologists forecast temperatures across much of the U.S. Lower 48 states would remain mostly lower than normal through Feb. 4 before turning higher than normal from Feb. 5 through at least Feb. 16.
With milder weather coming, Refinitiv forecast U.S. gas demand, including exports, would drop from 136.4 bcfd this week to 126.5 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Tuesday, while its forecast for next week was lower.
That should allow utilities to continue pulling less gas from storage for a fourth or fifth week in a row. Gas stockpiles were currently about 5% above the five-year (2018-2022) average and are on track to rise to 7% above normal in the federal storage report for the week ended Jan. 27.
The biggest wild card in the gas market remains when Freeport’s export plant will exit a seven-month outage caused by a fire in June 2022.
Freeport is the second-biggest U.S. LNG exporter, and traders expect prices to rise as demand for the fuel climbs when the plant starts pulling in big amounts of gas. The plant can turn about 2.1 bcfd of gas into LNG each day, which is about 2% of total U.S. daily gas production.
Source: Reuters