U.S. natural gas futures jumped 5% on Tuesday to a one-week high, ahead of options expiration on expectations demand will soon rise as liquefied natural gas (LNG) export plants start to exit maintenance outages.
Gas futures have been extremely volatile with prices up about 10% so far this week after plunging 23% last week to a seven-month low, as utilities boosted the amount of gas in storage ahead of winter.
Major LNG outages include Berkshire Hathaway Energy’s shutdown of its 0.8 billion cubic feet per day (bcfd) Cove Point LNG export plant in Maryland on Oct. 1 for about three weeks of planned maintenance and the shutdown of Freeport LNG’s 2.0 bcfd plant in Texas for unplanned work after an explosion on June 8. Freeport expects the facility to return to at least partial service in early to mid-November.
At least three vessels were heading to Freeport, Refinitiv data showed. Prism Brilliance was off the coast from the plant, Prism Diversity was expected to arrive Oct. 28 and Prism Courage Nov. 1. While some traders expect Freeport to delay its return to service, company officials have said the plant remains on track to return in November.
Front-month gas futures for November delivery rose 27.3 cents, or 5.3%, to $5.472 per million British thermal units (mmBtu) at 11:26 a.m. EDT (1526 GMT), putting the contract on track for its highest close since Oct. 18. Last week, futures settled below $5 for the first time since March.
That gain pushed the contract out of technically oversold territory for the first time in seven days.
“The rapidly approaching November options expiration tomorrow and final settlement Thursday will soon overtake fundamentals in dictating near-term price moves… with a gaping November-to-December spread, continued volatility appears likely,” analysts at energy consulting firm EBW Analytics said in a report.
Futures for December, which will soon be the front-month, were trading around $6.01 per mmBtu.
With the front month down about 60% over the past nine weeks, the premiums on futures for December 2022 over November 2022 and November 2023 over October 2023 have hit several record highs in recent days. Traders use the October-November and November-December spreads to bet on winter weather.
Despite weeks of declines, U.S. gas futures were still up about 46% this year as soaring global gas prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading at $29 per mmBtu at the Dutch Title Transfer Facility (TTF) in Europe and $31 at the Japan Korea Marker (JKM) in Asia.
On Monday, European forwards fell to $27 per mmBtu, their lowest close since June 13, as mild weather and strong LNG imports allowed utilities to boost the amount of gas in storage in northwest Europe to more than 90% of capacity. That put TTF down about 70% since settling at a record $90.91 on Aug. 25.
U.S. gas futures lag far behind global prices because the United States is the world’s top producer with all the fuel it needs for domestic use while capacity constraints and the Freeport outage prevent the country from exporting more LNG.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 99.5 bcfd so far in October, compared with a monthly record of 99.4 bcfd in September.