U.S. natural gas futures edged up about 1% to a three-week high on Thursday on low output in recent weeks and forecasts for more demand over the next two weeks than previously expected.
Gas futures for July delivery on the New York Mercantile Exchange rose 2.6 cents, or 0.7%, to $3.742 per million British thermal units, putting the contract on track for its highest close since May 9.
That small price increase occurred despite expectations that a federal report later on Thursday will show energy firms added more gas than usual to storage last week for a seventh week in a row, the last five of which were triple-digit injections.
Analysts projected energy firms added 111 billion cubic feet of gas into storage during the week ended May 30. That projection compares with an increase of 94 bcf during the same week last year and a five-year average build of 98 bcf for this time of year.
Gas stockpiles were around 4% above the five-year (2020-2024) average.
Another factor keeping pressure on futures prices in recent weeks has been low cash prices. Next-day prices at the U.S. Henry Hub benchmark in Louisiana were trading around $2.80 per mmBtu. Spot contracts have traded below front-month futures every day since late April.
Analysts have said that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states has fallen to 104.1 billion cubic feet per day so far in June, down from 105.2 bcfd in May and a monthly record high of 106.3 bcfd in March.
Energy traders said output reductions over the past month or so were primarily due to normal spring maintenance on gas pipelines. Energy firms usually work on gas pipes and other equipment in the spring and autumn when demand for the fuel for heating and cooling is low.
Meteorologists projected weather across the Lower 48 states would remain mostly warmer than normal through June 20.
LSEG forecast average gas demand in the Lower 48, including exports, will rise from 95.5 bcfd this week to 97.7 bcfd next week. Those forecasts were higher than LSEG’s outlook on Wednesday.
The average amount of gas flowing to the eight big U.S. LNG export plants has fallen to 13.5 bcfd so far in June, down from 15.0 bcfd in May and a monthly record high of 16.0 bcfd in April.
Energy traders said LNG feedgas reductions over the past month or so were primarily due to normal spring maintenance, including work at Cameron LNG’s 2.0-bcfd plant in Louisiana and Cheniere Energy’s 4.5-bcfd Sabine Pass facility in Louisiana and 3.9-bcfd Corpus Christi plant in Texas, and short, unplanned unit outages at Freeport LNG’s 2.1-bcfd plant in Texas on May 6, May 23, May 28 and June 3.
Energy traders have noted that LNG maintenance would likely continue through early- to mid-June at Cameron and late-June at Sabine. Analysts said demand for gas and prices will likely spike in late June when those LNG plants return to full service and power generators start burning more gas to meet rising summer air conditioning demand.
Source: Reuters