U.S. natural gas futures jumped about 6% to a nine-week peak on a preliminary drop in U.S. output, cooler forecasts and the possibility that additional sanctions on Russian gas supplies will keep U.S. liquefied natural gas (LNG) exports near record highs for months to come.
U.S. gas futures have climbed in recent months – average prices in March hit their highest levels in eight years – while global gas prices and demand for LNG soared as several countries seek to wean themselves off Russian gas after Moscow invaded Ukraine on Feb. 24.
Russia calls its actions in Ukraine a “special military operation” to disarm its neighbor.
Front-month gas futures rose 32.0 cents, or 5.6%, to settle at $6.032 per million British thermal units (mmBtu), their highest close since Jan. 27.
Record U.S. LNG demand has kept the front-month in technically overbought territory with a relative strength index (RSI) over 70 for a fifth day in a row for the first time since September 2021, and caused the 12-month futures strip to rise to its highest since February 2010 for a third day in a row.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 94.6 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 1.4 bcfd to 93.5 bcfd on Tuesday due mostly to declines in Texas, according to preliminary Refinitiv data. If that drop is correct – preliminary data is often revised – it would be the biggest one-day decline since extreme cold in early February froze wells.
Cold was definitely not the problem on Tuesday. AccuWeather forecast high temperatures in the West Texas Permian shale basin will reach 90 degrees Fahrenheit (32.2 Celsius), about 10 degrees above normal for this time of year.
Refinitiv projected average U.S. gas demand, including exports, would drop from 97.4 bcfd this week to 92.7 bcfd next week as the weather turns seasonally milder. Those forecasts were lower than Refinitiv’s outlook on Monday.
The amount of gas flowing to U.S. LNG export plants has slipped from a record 12.9 bcfd in March to 12.5 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.
The U.S. gas market remains mostly shielded from higher global prices because the United States, as the world’s top gas producer, has all the fuel it needs for domestic use and capacity constraints limit its ability to export more LNG no matter how high global prices rise.
Despite the threat of more sanctions on Russia, European gas eased about 2% on Tuesday to around $34 per mmBtu on oversupply concerns. So far this year, the U.S. gas market has followed European prices less than half the time.