U.S. natural gas futures slipped about 2% on Friday ahead of the long Martin Luther King Jr Day holiday weekend on expectations heating demand will decline following forecasts the weather will be less cold next week than previously expected.
Earlier in the week, prices dropped 12% on Thursday – their biggest one-day percentage decline since January 2019 – and soared 14% on Wednesday – their biggest one-day percentage increase since September 2020.
With extreme cold possible at any time and strong memories of price spikes during last February’s freeze in Texas, traders said they expect the market to remain volatile in coming weeks with every change in the weather forecast.
Friday’s U.S. price decline came despite a 10% jump in European TRNLTTFMc1 gas futures.
Since the start of the year, the U.S. market has focused more on changes in U.S. weather and domestic supply and demand than in what is happening around the world. So far in 2022, U.S. gas has followed European prices only about a quarter of the time versus about two-thirds during the fourth quarter of 2021.
But, traders said demand for U.S. liquefied natural gas (LNG) will remain strong as long as global gas prices trade well above U.S. futures – global prices were currently about seven times above U.S. prices – as utilities around the world scramble for LNG cargoes to replenish low stockpiles in Europe and meet surging demand in Asia. NG/GB
U.S. front-month gas futures NGc1 for February delivery fell 10.4 cents, or 2.4%, to $4.166 per million British thermal units (mmBtu) at 8:43 a.m. EST (1343 GMT).
That put the front month up about 6% for the week after 5% gains last week.
During last year’s February freeze, gas futures climbed as much as 7% on Feb. 16, but did not soar nearly as much as the spot market. Next-day gas jumped to record highs in several parts of the country – jumping over 1,100% on Feb. 12 at the Waha hub NG-WAH-WTX-SNL in West Texas – as Winter Storm Uri left millions without power and heat for days after freezing gas wells and pipes in Texas and other U.S. central states.
In the spot market this week, cold weather and high heating demand in the U.S. Northeast kept next-day power and gas prices in New York and New England at or near their highest since January 2018. Traders noted more freezing weather was on the way with Saturday expected to be the coldest day of the winter so far and below normal temperatures expected during the entire week of Jan. 23.
Data provider Refinitiv projected average U.S. gas demand, including exports, would slide from 133.4 billion cubic feet per day (bcfd) this week to 131.8 bcfd next week as the weather turns less cold before soaring to 142.2 bcfd in two weeks.
The amount of gas flowing to U.S. LNG export plants averaged 12.23 bcfd so far this month, close to the record 12.16 bcfd in December.
Source: Reuters (Reporting by Scott DiSavino; editing by Barbara Lewis)