U.S. natural gas futures fell to a fresh three-year low on Monday with spot prices at their lowest in years, production rising close to record highs and forecasts for less demand this week than previously expected.
Analysts noted the front-month has traded around multi-year lows since late May despite power demand and liquefied natural gas (LNG) exports close to all-time highs, as near-record production and mild spring weather allowed utilities to inject huge amounts of gas into stockpiles, shrinking a massive storage deficit and removing concerns about shortages next winter.
The amount of gas in inventory has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. But with production near record highs, analysts expect stockpiles will reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on Oct. 31.
“Traders are looking beyond the summer season with the recent sell-off as the window for more peak summer temperatures begins to close,” Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report.
“A much warmer-than-normal summer has been needed this year to soak up the excess supply and prevent a further price collapse but, aside from the heat that peaked in mid-July, variable temperatures in key population centers have restrained would-be demand,” Myers said.
On its last day as the front month, gas futures for August delivery on the New York Mercantile Exchange (NYMEX) fell 2.8 cents, or 1.3%, to settle at $2.141 per million British thermal units, their lowest since May 26, 2016.
That kept the front-month in oversold territory with a relative strength index (RSI) below 30 for a second day in a row.
September futures, which will soon be the front-month, closed at $2.116 per mmBtu.
The 12-month strip, meanwhile, fell to $2.33 per mmBtu, its lowest since March 2016.
All those bearish factors caused gas speculators to cut their net short positions on the NYMEX and Intercontinental Exchange to the lowest on record last week, according to U.S. Commodity Futures Trading Commission (CFTC) data from Refinitiv going back to 2010.
On the NYMEX, speculators cut their long positions to the lowest since November 2011 while boosting their shorts close to the highest since December 2017.
Gas production in the Lower 48 U.S. states rose to a three-week high of 90.4 bcfd on Sunday from a low of 88.9 bcfd last week, according to Refinitiv. That compares with an all-time daily high of 91.1 bcfd on July 5 and an average of 83.1 bcfd during this week last year.
Refinitiv projected demand in the Lower 48 would rise from 89.8 bcfd this week to 91.3 bcfd next week as power generators burn a little more fuel to meet higher air conditioning use and more gas flows to the nation’s LNG export terminals. But Refinitiv’s demand forecast for this week was lower than its 90.2-bcfd estimate on Friday.
That keeps the power sector on track to burn more than 40 bcfd of gas on average this month, which would break its monthly record of 39.9 bcfd set in July 2018, according to federal energy projections.
The amount of gas flowing to LNG export terminals, meanwhile, held around 6.0 bcfd on Saturday and Sunday, up from a low of 5.7 bcfd last week, according to Refinitiv data. That compares with a record high of 6.4 bcfd on July 19.
Analysts said they expect LNG exports to hit fresh highs soon as new units enter service at Sempra Energy’s Cameron in Louisiana, Freeport LNG’s Freeport in Texas and Kinder Morgan Inc’s Elba in Georgia.
In Asia, LNG futures at the Japan Korea Marker (JKM) fell to $4.38 per mmBtu, their lowest since April 2016. Traders, however, noted that was still more than $2 over the Henry Hub benchmark in Louisiana, which should make it profitable to keep sending U.S. cargoes to Asia.
Gas prices for Monday at the Henry Hub fell to $2.23 per mmBtu, their lowest since November 2016 as moderate weather across much of the country caused demand for the fuel for cooling to decline.