U.S. natural gas futures eased to a one-week low on Tuesday on forecasts for milder weather and less heating demand over the next two weeks than previously expected.
European gas prices, meanwhile, jumped 13% to a record high on worries about possible supply shortages this winter as Russian exports remain low. Rocketing European prices should keep U.S. liquefied natural gas (LNG) exports near record highs.
Front-month gas futures fell 4.7 cents, or 1.2%, to settle at $3.747 per million British thermal units (mmBtu), their lowest close since Dec. 7.
The premium of March 2021 futures over April 2021 slid to a record low of 6 cents per mmBtu. The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks.
The industry calls the March-April spread the “widow maker” because rapid price moves resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006. Charts show the widow maker is now close to going into contango with summer contracts trading over winter contracts. Winter officially begins on Dec. 21 with the winter solstice.
Global gas prices were at record highs as utilities around the world scrambled for LNG cargoes to replenish low stockpiles in Europe and meet surging demand in Asia, where energy shortfalls caused power blackouts in China.
U.S. futures jumped to a 12-year high in early October but have retreated because the United States has plenty of gas in storage and ample production for winter. Overseas prices were trading about 10 times higher than U.S. futures.
Analysts have said European inventories were about 20% below normal for this time of year, compared with just 3% below normal in the United States.
Looking ahead, many analysts said milder-than-normal weather in December will cause U.S. utilities to leave enough gas in storage to allow stockpiles to reach above-normal levels in a week or two, the first above-normal storage levels since April.
Data provider Refinitiv said output in the U.S. Lower 48 states has averaged 96.51 billion cubic feet per day (bcfd) so far in December, just shy of November’s monthly record of 96.54 bcfd.
Refinitiv projected average U.S. gas demand, including exports, would jump from 109.9 bcfd this week to 121.4 bcfd next week as the weather turns seasonally colder. Those forecasts were lower than Refinitiv’s outlook on Monday.
The amount of gas flowing to U.S. LNG export plants has averaged 11.8 bcfd so far in December now that the sixth train at Cheniere Energy Inc’s Sabine Pass plant in Louisiana is producing LNG. That compares to 11.4 bcfd in November and a monthly record of 11.5 bcfd in April.
Pipeline data from Refinitiv showed that gas flows to Freeport LNG’s export plant in Texas were on track to drop to 0.4 bcfd on Tuesday from an average of 2.0 bcfd over the past week,