U.S. natural gas futures eased about 1% on Monday as output rose to a record high, forecasts predicted less hot weather than previously expected for the next two weeks, and several LNG export plants continued to operate at less than full power.
Even though the forecasts were for less heat than previously expected, the outlook is still for hotter than normal weather through mid-August.
Friday was the hottest day so far this summer in the U.S. Lower 48 states and the third hottest on record, according to Refinitiv data going back to 2018. Refinitiv said temperatures across the country averaged 82.2 degrees Fahrenheit (27.9 Celsius) on Friday, just shy of the 82.6 F on July 19, 2022, and the record high of 83.0 F on July 20, 2022.
Extreme heat last week stressed electric grids and boosted several spot power prices to their highest in months as homes and businesses cranked up their air conditioners to escape a brutal heatwave blanketing much of the country. The grids, however, managed to keep the lights on and air conditioners humming all week with few problems.
To keep that power flowing, U.S. generators burned a record amount of gas to produce electricity for three days in a row last week. Refinitiv said power generators burned about 53.4 billion cubic feet per day (bcfd) of gas on Friday, topping the prior records of 52.9 bcfd on Thursday and 51.2 bcfd on Wednesday, 50.3 bcfd on July 14 and 49.6 bcfd on July 20, 2022.
With the heatwave expected to linger in Texas, the Electric Reliability Council of Texas, the state’s grid operator, forecast power demand would set new records on Monday and Tuesday.
Front-month gas futures for September delivery on the New York Mercantile Exchange fell 1.7 cents, or 0.6%, to $2.621 per million British thermal units at 9:25 a.m. EDT (1325 GMT).
A lack of rapid price moves in recent weeks – futures settled up or down 5% only three times in July – cut the contract’s 30-day implied volatility to 54.4%, its lowest since March 2022.
The market uses implied volatility to estimate likely price changes in the future. At-the-money 30-day implied volatility, a determinant of an option’s premium, averaged 75.4% so far in 2023, down from 80.6% in 2022 and a five-year (2018-2022) average of 53.2%.
For the month, the contract was on track to fall about 6% after jumping about 23% in June.
Even though prices were down so far in July, speculators last week boosted their net long gas futures and options positions on the New York Mercantile and Intercontinental Exchanges for the sixth time in seven weeks, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
SUPPLY AND DEMAND
Refinitiv said average gas output in the Lower 48 states rose to 101.6 bcfd so far in July, up from 101.0 bcfd in June but down from a monthly record of 101.8 bcfd in May due to pipeline maintenance outages earlier in the month.
On a daily basis, however, output hit a record 102.8 bcfd on Saturday, topping the prior daily high of 102.7 bcfd on July 4.
Meteorologists forecast the weather in the Lower 48 states will remain mostly hotter than normal through at least Aug. 15.
Refinitiv forecast U.S. gas demand, including exports, would rise from 106.9 bcfd this week to 107.4 bcfd next week as some LNG export plants exit maintenance outages and start pulling in more feedgas.
Gas flows to the seven big U.S. LNG export plants rose to an average of 12.7 bcfd so far in July, up from 11.6 bcfd in June. That, however, is still well below the monthly record of 14.0 bcfd in April.
(Reporting by Scott DiSavino; Editing by Conor Humphries)