U.S. natural gas futures rose about 2% on Wednesday from a one-year low in the previous session on forecasts for colder than normal weather in late January.
That price increase came despite forecasts for unseasonally warm weather over the next two weeks and lower than previously expected heating demand next week.
Front-month gas futures for February delivery rose 8.3 cents, or 2.3%, to $3.722 per million British thermal units (mmBtu) at 8:17 a.m. EST (1317 GMT). On Tuesday the contract dropped 7% to close at its lowest since Dec. 30, 2021.
That continues last year’s record volatility, with the contract now up or down more than 5% on four of the seven trading days in 2023.
Despite the price increase, the front-month remained in technically oversold territory, with a relative strength index (RSI) below 30 for a second day in a row.
The premium on March futures over April, which the industry calls the widow maker, slid to a record low of 6 cents per mmBtu as some market participants give up hope that extreme cold will bring a price spike later this winter.
The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business. Among them was the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.
Shares outstanding in the U.S. Natural Gas Fund, an exchange-traded fund (ETF) designed to track the daily price movement of gas, rose to 48.3 million for the highest since December 2020. Daily share purchases have entered the top 10 daily inflows on record three times already this year, Refinitiv data shows.
In the spot market, meanwhile, next-day gas for Wednesday at the U.S. Henry Hub benchmark in Louisiana fell to $3.32 per mmBtu, its lowest since June 2021.
Traders said the biggest market uncertainty remains the restart date for Freeport LNG’s export plant in Texas.
After several delays from October to November and then to December, Freeport now expects the facility to be back in operation in the second half of January, pending regulatory approvals.
Analysts have long said Freeport would probably be back online during the first or second quarter of 2023 because further work is required to satisfy federal regulators, including training staff in new safety procedures, before the plant can be restarted.
Whenever Freeport returns, U.S. gas demand will jump. The plant can turn about 2.1 billion cubic feet per day (bcfd) of gas into LNG, which is about 2% of U.S. daily production.
Several vessels, including Prism Diversity, Prism Courage and Prism Agility, were waiting in the Gulf of Mexico to pick up LNG from Freeport. Some have been there since early November.
Other ships, meanwhile, were sailing toward Freeport, including Corcovado LNG, which is expected to arrive in mid-January, and Prism Brilliance, Kmarin Diamond and Wilforce, expected in late January.
U.S. GAS OUTPUT RISING
Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has risen to 98.3 bcfd so far in January, up from 96.7 bcfd in December. That compares with a monthly record of 99.9 bcfd in November 2022.
With the weather expected to remain warmer than normal until late January, Refinitiv projected average U.S. gas demand, including exports, would ease from 120.7 bcfd this week to 119.5 bcfd next week. The forecast for next week was lower than Refinitiv’s outlook on Tuesday.