U.S. natural gas futures dropped about 5% to a 21-month low on Monday on forecasts for warmer weather and lower heating demand through the middle of February than previously expected.
Gas prices have also been under pressure in recent weeks by growing beliefs in the market that there was more than enough gas in storage for the rest of the winter and that Freeport LNG’s liquefied natural gas (LNG) export plant in Texas would not start pulling in big amounts of gas until at least March.
On its first day as the front-month, gas futures for March delivery were down 13.5 cents, or 4.7%, from where the March contract closed on Friday to $2.714 per million British thermal units (mmBtu) at 9:53 a.m. EST (1453 GMT), putting the contract on track for its lowest close since April 2021.
That put the front-month down about 13% from where the February contract closed when it was the front-month on Friday.
It also pushed the contract back into oversold territory with a relative strength index (RSI) below 30 for the 14th time this year.
With gas prices down about 39% so far this year, gas speculators started taking profits last week by cutting their short futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in six weeks, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Meteorologists forecast that U.S. weather would remain mostly colder than normal through Feb. 5 before turning warmer than normal through at least Feb. 14.
With milder weather coming, Refinitiv forecast U.S. gas demand, including exports, would drop from 133.3 billion cubic feet per day (bcfd) this week to 129.9 bcfd next week. Those forecasts were much lower than Refinitiv’s outlook on Friday.
That should allow utilities to continue pulling less gas from storage for at least a fourth or even fifth week in a row this year. EIA/GAS]
The biggest wild card in the gas market remains when Freeport’s export plant will exit a seven-month outage caused by a fire in June 2022.
The market cares about Freeport, the second-biggest U.S. LNG export plant, because traders expect prices to rise once the facility starts pulling in big amounts of gas, boosting overall demand for the fuel. The plant can pull in about 2.1 bcfd of gas and turn it into LNG.
That is about 2% of what U.S. gas producers pull from the ground each day.
Last week, federal regulators approved Freeport’s plan to start cooling down parts of the plant. That is an early step in the restart process, but will not result in big gas flows anytime soon.
The company still has to go back to regulators to get permission to restart the liquefaction trains that turn the gas into LNG for export.
Several analysts have said they don’t expect to see much LNG production at the Freeport plant until March or later. Analysts at Goldman Sachs said recently they expect Freeport LNG to restart in mid-February, but noted it would take until the end of March before all three of the plant’s liquefaction trains were back in operation.
JERA, one of Freeport’s five customers, said it was not counting on getting LNG from the plant by the end of March.
Even though vessels have turned away from Freeport in recent weeks, several tankers were still waiting in the Gulf of Mexico to pick up LNG from the plant, including Prism Courage (since around Nov. 4), Prism Agility (Jan. 2), Corcovado LNG (Jan. 22), Prism Brilliance (Jan. 26) and Kmarin Diamond (Jan. 26).
There are also a couple of vessels on their way to Freeport, including LNG Rosenrot (expected to arrive around Feb. 14) and Seapeak Bahrain (Feb. 20).