U.S. natural gas futures jumped over 5% to a three-week high on Wednesday in extremely volatile trade ahead of the front-month’s contract expiration on forecasts for colder weather and higher heating demand over the next two weeks than previously expected.
That price increase came despite a slow rise in U.S. output and a 5% drop in European gas prices after Russian President Vladimir Putin told Kremlin-controlled energy giant Gazprom to start pumping gas into European gas storage once Russia finishes filling its own stocks, which may happen by Nov. 8.
Gas prices around the world have soared to record highs over the past couple of months as utilities scramble for liquefied natural gas (LNG) cargoes to refill low stockpiles in Europe and meet rising demand in Asia, where energy shortfalls have caused power blackouts in China.
U.S. futures followed those global gas prices higher – reaching a 12-year high in early October – on expectations demand for U.S. LNG exports would remain strong.
But gas remains much cheaper in the United States than in Europe or Asia, where the fuel was trading about five times higher than in the United States.
That’s because the United States has more than enough gas in storage for the winter and ample production to meet domestic and export demand. In addition, U.S. export plants were already producing LNG near full capacity so no matter how high global prices rise, the United States could not export much more of the super-cooled fuel.
Analysts expect U.S. gas inventories will reach 3.6 trillion cubic feet (tcf) by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 tcf five-year average.
U.S. stockpiles were currently about 4% below the five-year (2016-2020) average for this time of year. In Europe, analysts say stockpiles were about 15% below normal.
On its last day as the front-month, gas futures for November delivery rose 32.0 cents, or 5.4%, to settle at $6.202 per million British thermal units (mmBtu). That was the contract’s highest close since Oct. 5, when it settled at its highest since December 2008.
The December contract, which will soon be the front-month, was up 20 cents to $6.20 per mmBtu.
The spread between the December and November futures has been on a wild ride this month, rising from 14-cent premium for the December contract at the start of the month to a 30-cent premium for the December contract on Oct. 20 before the November contract soared on its last day to close at a small premium over December on Wednesday.
Data provider Refinitiv said output in the U.S. Lower 48 states has averaged 92.3 billion cubic feet per day (bcfd) so far in October, up from 91.1 bcfd in September. That compares with a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would rise from 90.7 bcfd this week to 92.7 bcfd next week as more homes and businesses turn on their heaters. Those forecasts were higher than Refinitiv projected on Tuesday.
Despite some work at a couple of plants and pipelines, the amount of gas flowing to U.S. LNG export plants has averaged 10.5 bcfd so far in October, up from 10.4 bcfd in September.
With gas prices near $29 per mmBtu in Europe and $34 in Asia, versus around $6 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.