U.S. natural gas futures dropped almost 6% to a near 11-week low on Monday on forecasts for milder than normal weather and lower demand over the next two weeks than previously expected.
Traders said prices also slumped on near record U.S. output, healthy U.S. stockpiles and a decline in European gas futures.
Front-month gas futures fell 29.7 cents, or 5.9%, to $4.768 per million British thermal units (mmBtu) at 8:27 a.m. EST (1327 GMT), putting the contract on track for its lowest close since Sept. 7.
That left the front-month just 2 cents over its 100-day moving average, which has remained a solid technical floor for the contract since April.
Before the latest price drop, speculators boosted their net long positions on the New York Mercantile and Intercontinental Exchanges last week for the first time since September as liquefied natural gas (LNG) exports jumped to record highs with soaring global gas prices keeping demand for U.S. LNG strong.
Global gas prices hit record highs over the past couple of months as utilities around the world scramble for LNG cargoes to replenish extremely low stockpiles in Europe and meet insatiable demand in Asia, where energy shortfalls have caused power blackouts in China.
Following those global gas prices, U.S. futures jumped to a 12-year high in early October, but have pulled back since because the United States has plenty of gas in storage and ample production for the winter. Overseas prices continue to trade about six times higher than U.S. futures.
Analysts have said European inventories were about 17% below normal for this time of year, compared with just 2% below normal in the United States.
Data provider Refinitiv said output in the U.S. Lower 48 states averaged 96.1 billion cubic feet per day (bcfd) so far in November, up from 94.1 bcfd in October and a monthly record of 95.4 bcfd in November 2019.
Refinitiv projected average U.S. gas demand, including exports, would rise to 114.1 bcfd next week from 111.4 bcfd this week as the weather turns seasonally colder and homes and businesses crank up their heaters. The forecast for next week, however, was lower than Refinitiv’s forecast on Friday.
The amount of gas flowing to U.S. LNG export plants averaged 11.2 bcfd so far in November, up from 10.5 bcfd in October as the sixth train at Cheniere Energy Inc’s Sabine Pass plant in Louisiana started producing LNG in test mode. That compares with a monthly record of 11.5 bcfd in April.
With gas prices around $27 per mmBtu in Europe and $34 in Asia, compared with about $5 in the United States, traders said buyers around the world will keep purchasing all the LNG the United States can produce.
But no matter how high global gas prices rise, the United States only has the capacity to turn about 11.1 bcfd of gas into LNG. The rest of the gas flowing to the export plants is used to fuel equipment that produces the LNG.
Global markets will have to wait until later this year to get more when Venture Global LNG’s Calcasieu Pass in Louisiana starts producing LNG in test mode.