U.S. natural gas futures fell about 3% on Friday to a one-week low on record output and forecasts for milder weather through late December than previously expected.
Mostly mild weather since mid-November has kept heating demand low and allowed utilities to leave so much gas in storage that there will soon be more of the fuel in stockpiles than is usual for the time of year for the first time since April.
The U.S. futures decline came despite near record gas prices in Europe and Asia that were over 11 times higher than U.S. prices and should keep demand for U.S. liquefied natural gas exports (LNG) strong for months to come.
Front-month gas futures fell 10.4 cents, or 2.8%, to $3.662 per million British thermal units (mmBtu) at 7:49 a.m. (EST 1249 GMT), putting the contract on track for its lowest close since it hit a four-month low of $3.657 on Dec. 6.
For the week, the contract was down about 7%, which would be a third week of consecutive declines for the first time since October.
The premium of March 2021 futures over April 2021 slid to a record low of around 5 cents per mmBtu. The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks.
That puts the March-April spread, known as the ‘widow maker’, close to going into contango with summer contracts (April) trading over winter contracts (March) even before the official start of winter with the solstice on Dec. 21.
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 more than $6 billion on gas futures in 2006.
Global gas prices have repeatedly reached all-time highs over the last few months 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 of more than $6 per mmBtu in early October, but have retreated because the United States has plenty of gas in storage and ample production for winter.
Analysts have said European inventories were about 20% 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 has averaged 96.8 billion cubic feet per day (bcfd) so far in December, which would top the monthly record of 96.5 bcfd in November.
Refinitiv projected average U.S. gas demand, including exports, would jump from 109.7 bcfd this week to 120.6 bcfd next week and 123.6 bcfd in two weeks as the weather turns seasonally colder. Those forecasts were higher than Refinitiv’s outlook on Thursday.
The amount of gas flowing to U.S. LNG export plants has averaged 11.9 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.