U.S. natural gas futures held steady on Monday as rising output and forecasts for less demand next week offset forecasts for higher demand this week with the weather expected to remain hotter than normal through early August, especially in Texas.
Power demand in Texas hit a record high on July 18 and will likely break that record on Tuesday and Wednesday and again next week as homes and businesses keep air conditioners cranked up to escape a lingering heatwave, said the Electric Reliability Council of Texas (ERCOT), the state’s power grid operator.
Extreme heat boosts the amount of gas burned to produce power for cooling, especially in Texas, which gets most of its electricity from gas-fired plants. In 2022, about 49% of the state’s power came from gas-fired plants, with most of the rest coming from wind (22%), coal (16%), nuclear (8%) and solar (4%), federal energy data showed.
Front-month gas futures for August delivery on the New York Mercantile Exchange were down 0.8 cents, or 0.3%, to $2.705 per million British thermal units at 9:49 a.m. EDT (1349 GMT).
Even though prices rose about 7% last week, speculators cut their net long gas futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in six weeks to their lowest level since June, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
A lack of rapid price moves in recent weeks – futures settled up or down just once in July – cut the contract’s 30-day implied volatility index to 56.6%, its lowest since April 2022 for a third day in a row.
The market uses implied volatility to estimate likely price changes in the future. At-the-money 30-day implied volatility NGATMIV, a determinant of an option’s premium, has averaged 76.1% so far in 2023, down from 80.6% in 2022 and a five-year (2018-2022) average of 53.2%.
SUPPLY AND DEMAND
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 101.6 billion cubic feet per day (bcfd) so far in July, from 101.0 bcfd in June. That compares with a monthly record of 101.8 bcfd in May.
Meteorologists forecast the weather in the Lower 48 states will remain hotter than normal through at least Aug. 8.
With liquefied natural gas (LNG) export plants expected to exit maintenance outages, Refinitiv forecast U.S. gas demand, including exports, would rise from 106.5 bcfd this week to 107.2 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Friday, while its forecast for next week was lower.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 12.8 bcfd so far in July from 11.6 bcfd in June. That is still well below the monthly record of 14.0 bcfd in April due to ongoing maintenance at several facilities in Louisiana, including Cameron LNG, Cheniere Energy’s Sabine Pass and Venture Global LNG’s Calcasieu.
(Reporting by Scott DiSavino; Editing by Paul Simao)