U.S. natural gas futures eased about 1% on Thursday on record output and forecasts for milder weather and lower heating demand next week than previously expected.
That price decline came even though last week’s storage build was bigger than usual for this time of year, as expected, and as the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants rose to a near-record high.
The U.S. Energy Information Administration (EIA) said utilities added 79 billion cubic feet (bcf) of gas into storage during the week ended Oct. 27.
That was in line with the 80-bcf build analysts forecast in a Reuters poll and compares with an increase of 99 bcf in the same week last year and a five-year (2018-2022) average increase of 57 bcf.
Analysts said the build was bigger than usual for this time of year because mild weather last week kept heating demand low.
Front-month gas futures for December delivery on the New York Mercantile Exchange fell 2.2 cents, 0.6%, to settle at $3.472 per million British thermal units (mmBtu).
Despite the decline, the front-month remained in technically overbought territory for a fourth day in a row for the first time since mid October.
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 174 out of 210 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub fell about 4% to $3.19 per mmBtu for Thursday.
Analysts have noted that as long as the futures market stays 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
LSEG said average gas output in the Lower 48 U.S. states rose to 106.1 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
Meteorologists forecast the weather will turn from colder than normal now to mostly warmer than normal from Nov. 4-17.
With milder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would drop from 109.9 bcfd this week to 101.4 bcfd next week. The forecast for next week was lower than LSEG’s outlook on Wednesday.
Pipeline exports to Mexico slid to an average of 5.9 bcfd so far in November, down from 6.5 bcfd in October and a record 7.0 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 LNG for export in November.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.8 bcfd so far in November, up from 13.7 bcfd in October and a record 14.0 bcfd in April.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)