U.S. natural gas futures jumped about 4% on Wednesday, putting the contract on track for its highest close in six months, on a decline in output and forecasts for more gas demand from power generators over the next two weeks than previously expected.
U.S. gas futures have soared about 68% so far this year as much higher prices in Europe keep demand for U.S. liquefied natural gas (LNG) near record highs with several countries seeking to wean themselves off Russian gas after Moscow launches its invasion of Ukraine on Feb. 24.
Russia calls its actions in Ukraine a “special military operation” to disarm its neighbor. Ukraine and Western countries call it an unprovoked invasion.
U.S. front-month gas futures rose 23.8 cents, or 4.0%, to $6.270 per million British thermal units (mmBtu) at 9:33 a.m. EDT (1333 GMT), putting the contract on track for its highest close since Oct. 5, 2021.
European gas, meanwhile, rose about 2% on Wednesday to around $35 per mmBtu after the European Union (EU) continued to keep Russia gas off its sanctions list despite calls from some members to add the fuel. So far this year, the U.S. gas market has followed European prices less than half the time.
Record U.S. LNG demand has kept the front-month in technically overbought territory with a relative strength index (RSI) over 70 for a sixth day in a row for the first time since last September, and caused the 12-month futures strip to rise to its highest since January 2009.
The premium of futures for March over April 2023 rose to a record high of $1.47 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 betting on the spread out of business, including the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 94.5 billion cubic feet per day (bcfd) so far in April, from 93.7 bcfd in March. That compares with a monthly record of 96.3 bcfd in December.
On a daily basis, however, output was on track to drop about 0.8 bcfd to 93.3 bcfd on Wednesday due mostly to declines along the Gulf Coast and in Appalachia, according to preliminary Refinitiv data. If that drop is correct — preliminary data is often revised as happened on Tuesday when a preliminary decline of 1.6 bcfd was reduced to around 0.8 bcfd — it would be the biggest one-day decline since mid-March.
Refinitiv projected average U.S. gas demand, including exports, would drop from 98.2 bcfd this week to 93.2 bcfd next week as the weather turns seasonally milder. Those forecasts were higher than Refinitiv’s outlook on Tuesday.
The amount of gas flowing to U.S. LNG export plants fell from a record 12.9 bcfd in March to 12.4 bcfd so far in April due to declines at Cheniere Energy Inc’s Corpus Christi facility and Freeport LNG’s facility in Texas. The United States can turn about 13.2 bcfd of gas into LNG.