U.S. natural gas futures dropped more than 5% on Wednesday, pressured by a broader sell-off across financial markets as concern over Credit Suisse reignited banking worries and stifled appetite for risky assets, while expectations for lower heating demand also weighed on prices.
Front-month gas futures for April delivery dropped for a second-straight session, slipping 14.5 cents, or 5.6%, to $2.428 per million British thermal units at 10:42 am EDT (1442 GMT).
“Concerns about the banking sector and Credit Suisse has led to a lot of liquidation in a lot of markets and the natural gas market is getting caught up in that selling that’s pressuring things around the globe,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
“Obviously, weather and concerns about what the injection number are all going to be playing into this but I think predominantly the reason we’re down as much as we are is because of the risk-off situation,” he added, referring to Energy Information Administration (EIA) data due out on Thursday.
In broader financial markets, equities, oil and bonds tumbled while the dollar rallied as Swiss bank Credit Suisse shares plunged to record lows following the collapse of Silicon Valley Bank last week, deepening the banking sector crisis.
Further weighing on natgas prices were forecasts for milder weather. Data provider Refinitiv estimated 300 heating degree days (HDDs) over the next two weeks, down from 318 HDDs estimated on Tuesday.
HDDs estimate demand to heat homes and businesses by measuring the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).
Refinitiv forecast U.S. gas demand, including exports, would slide from 120.8 bcfd this week to 120.0 bcfd next week.
Milder winter weather so far this year has also prompted utilities to leave more gas in storage than usual.
Meanwhile, gas flows to LNG export plants have been on track to hit record highs since Freeport LNG’s export plant in Texas exited an eight-month outage in February. The plant was shut due to a fire in June 2022.
When operating at full power, Freeport LNG, the second-biggest U.S. LNG export plant, can turn about 2.1 bcfd of gas into LNG for export.
Federal regulators approved the restart of two of Freeport LNG’s three liquefaction trains (Trains 2 and 3) in February and the third train (Train 1) on March 8. Liquefaction trains turn gas into LNG.
The seven big U.S. LNG export plants, including Freeport LNG, can turn about 13.8 bcfd of gas into LNG.