U.S. natural gas futures fell almost 7% on Thursday, erasing the prior session’s gains, on rising output, lower demand forecasts, a big storage build and a drop in global gas prices after Russia said it would send more fuel to Europe for the winter heating season.
The U.S. Energy Information Administration (EIA) said U.S. utilities added 87 billion cubic feet (bcf) of gas into storage during the week ended Oct. 22. It was the seventh week in a row that the build was bigger than usual.
That was in line with the 86-bcf build analysts projected in a Reuters poll and compares with an increase of 32 bcf in the same week last year and a five-year (2016-2020) average rise of 62 bcf.
Last week’s injection boosted stockpiles to 3.548 trillion cubic feet (tcf), 3.4% below the five-year average of 3.674 tcf for this time of year.
Gas prices in Europe were down about 11% 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.
Since the summer, gas prices around the world have soared to record highs 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 global gas prices higher, reaching a 12-year high in early October on expectations demand for U.S. LNG exports would remain strong.
In Europe and Asia, natural gas was trading about five times higher than in the United States, which has more than enough gas in storage for winter and ample production to meet domestic and export demand.
U.S. export plants were already producing LNG near full capacity, so the United States could not export much more of the super-cooled fuel no matter how high prices rise.
Analysts expect U.S. gas inventories will top 3.6 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 3% below the five-year average for this time of year. In Europe, analysts say stockpiles were about 15% below normal.
On its first day as the front month, gas futures for December delivery fell 41.6 cents, or 6.7%, to settle at $5.782 per million British thermal units, their lowest close since Oct. 22.
On Wednesday, when November was still the front month, the contract rose over 5% to settle at its highest since Oct. 5, when it closed at its highest since December 2008.
In the spot market, an early shot of cold expected to hit Alberta over the next week boosted gas prices at the AECO hub to their highest since the February freeze hit Texas.
Prices in Alberta had been the cheapest among the North America supply basins for much of this year, prompting U.S. utilities to boost imports from Canada to their highest in years.
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.