U.S. natural gas futures dropped about 6% on Monday to a one-week low as output increases and the weather turns milder than previously forecast.
Traders also noted that a 3% decline in crude futures was weighing on gas prices. Crude was down due to a stronger U.S. dollar that makes oil more expensive for holders of other currencies and lockdowns in China that limit demand for energy.
U.S. front-month gas futures for June delivery were down 51.2 cents, or 6.4%, to $7.531 per million British thermal units (mmBtu) at 9:43 a.m. EDT (1343 GMT), putting the contract on track for its lowest close since May 2.
That decline follows an 8% drop on Friday from a 13-year high on Thursday.
Earlier in the week, U.S. gas futures followed oil prices higher after the European Union proposed a phased embargo on Russian oil in response to Moscow’s Feb. 24 invasion of Ukraine.
Analysts said the proposed oil embargo increased the possibility the EU would seek to ban Russian gas in the future.
Despite the possibility of a European embargo on Russian gas, which would boost demand in U.S. liquefied natural gas (LNG), U.S. gas speculators last week cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for a third week in a row to the lowest since late March, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
U.S. gas futures have already gained about 102% so far this year as higher global prices kept demand for U.S. LNG exports near record highs since Russia’s invasion. Gas was trading around $30 per mmBtu in Europe and $24 in Asia.
In Texas, meanwhile, the power grid operator forecast demand would soar on Monday as consumers crank up their air conditioners even though meteorologists moderated their earlier extreme-heat forecasts.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states had risen to 94.8 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April. That compares with a monthly record of 96.1 bcfd in November 2021.
On a daily basis, output climbed to 95.9 bcfd on Sunday, its highest since late December.
Refinitiv projected average U.S. gas demand, including exports, would slide from 90.6 bcfd this week to 89.4 bcfd next week as the weather turns seasonally milder. Those forecasts were similar to Refinitiv’s outlook on Friday.
The amount of gas flowing to U.S. LNG export plants has risen to 12.3 bcfd so far in May from 12.2 bcfd in April. That compares with a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.
Since the United States will not be able to produce much more LNG anytime soon, it has worked with allies to divert LNG exports from elsewhere to Europe to help EU countries and others break their dependence on Russian gas.
Russia, the world’s second-biggest gas producer, has provided about 30%-40% of Europe’s gas, totaling about 18.3 bcfd in 2021. 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.