U.S. natural gas futures edged up about 1% on Monday on expectations that recent declines in U.S. output will keep the amount of gas that utilities can inject into storage lower than usual in coming weeks.
The rise came despite a 5% drop in global crude prices and forecasts for milder weather and less demand in the United States over the next two weeks than previously expected.
U.S. front-month gas futures rose 8.2 cents, or 1.3%, to $6.616 per million British thermal units (mmBtu) at 10:04 a.m. EDT (1404 GMT). On Friday, the contract closed at its lowest since April 8.
With prices falling about 10% last week, U.S. gas speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in five weeks, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Despite recent declines, U.S. gas futures were still up about 77% so far this year as much higher prices in Europe kept demand for U.S. liquefied natural gas (LNG) exports near record highs since Russia invaded Ukraine on Feb. 24. Gas prices in Europe were trading around $30 per mmBtu.
The U.S. gas market remains mostly shielded from higher global prices because the United States is the world’s top gas producer, with all the fuel it needs for domestic use and capacity constraints that inhibit exports of more LNG no matter how high global prices rise.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 94.4 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 2021.
On a daily basis, however, output was on track to drop about 2.3 bcfd over the past two days to a preliminary 93.1 bcfd on Monday, its lowest since mid-March. Most of those declines were in North Dakota. Preliminary data is often revised.
With milder weather coming, Refinitiv projected average U.S. gas demand, including exports, would slide from 92.4 bcfd this week to 90.5 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Friday.
The amount of gas flowing to U.S. LNG export plants slid from a record 12.9 bcfd in March to 12.2 bcfd so far in April due mostly to declines at Freeport LNG’s facility in Texas. The United States can turn about 13.2 bcfd of gas into LNG.
Since the United States will not be able to produce more LNG anytime soon, the country worked with allies to divert more LNG exports to Europe to help European Union countries and others break their dependence on Russian gas.
Russia, the world’s second biggest gas producer, provided about 30%-40% of Europe’s gas in 2021, totaling about 18.3 bcfd.
The EU wants to cut Russian gas imports by two-thirds by the end of 2022 and refill stockpiles to 80% of capacity by Nov. 1, 2022 and 90% by Nov. 1 each year from 2023.
Gas stockpiles in Western Europe – Belgium, France, Germany and the Netherlands – were about 23% below the five-year (2017-2021) average for this time of year, according to Refinitiv.
That is about 28% of full capacity and compares with U.S. inventories about 17% below their five-year norm.