U.S. natural gas futures fell about 4% on Wednesday on record output and forecasts for milder weather as well as lower heating demand over the next two weeks than previously expected.
After soaring 7% to a nine-month high on Tuesday, front-month gas futures for December delivery on the New York Mercantile Exchange fell 13.2 cents, 3.7%, to $3.443 per million British thermal units (mmBtu) at 9:17 a.m. EDT (1317 GMT) on Wednesday. On Tuesday, the contract closed at its highest since Jan. 17.
That drop pushed the front-month out of technically overbought territory.
One bearish factor that has weighed on the futures market for most of this year has been lower spot or next-day prices at the Henry Hub benchmark in Louisiana. The spot market has traded below front-month futures for 173 out of 209 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub gained about 5% to $3.34 per mmBtu for Wednesday.
Analysts have noted that as long as the futures market remains in contango and spot prices remain far enough below the front-month to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to a record 104.2 billion cubic feet per day (bcfd) in October, up from 102.6 bcfd in September. That topped the prior all-time high of 103.1 bcfd in July.
On a daily basis, however, output was on track to drop about 1.4 bcfd to a preliminary one-week low of 103.8 bcfd on Wednesday. Traders, however, noted preliminary data – especially first of the month preliminary data – is often revised later in the day.
Meteorologists forecast the weather will turn from colder than normal now to mostly near normal from Nov. 3-16.
With milder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would drop from 109.8 bcfd this week to 103.7 bcfd next week. Those forecasts were lower than LSEG’s outlook on Tuesday.
Pipeline exports to Mexico fell to an average of 6.55 bcfd in October, down from 6.96 bcfd in September and a monthly record high of 6.98 bcfd in August.
Analysts, however, expect U.S. exports to Mexico to rise in coming months once U.S. energy company New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export in November.
Gas flows to the seven big U.S. LNG export plants rose to 13.7 bcfd so far in October, up from 12.6 bcfd in September, but still below a monthly record high of 14.0 bcfd in April.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $15 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $18 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; editing by Christina Fincher)