U.S. natural gas futures fell about 4% to a fresh one-week low on Tuesday on record output and forecasts for mild weather through late November, keeping heating demand low and allowing utilities to keep injecting gas into storage for a couple more weeks.
Front-month gas futures for December delivery on the New York Mercantile Exchange fell 11.4 cents, or 3.5%, to $3.150 per million British thermal units (mmBtu) at 9:53 a.m. EDT (1353 GMT), putting the contract on track for its lowest close since Oct. 25.
Looking ahead, the U.S. Energy Information Administration (EIA) said it would not release its weekly gas storage report on Thursday due to a planned systems upgrade, adding to the market volatility. EIA will resume its regular schedule next week.
One bearish factor that has weighed on the futures market 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 176 out of 212 trading days so far this year, according to data from LSEG.
Next-day prices at the Henry Hub fell about 10% to $2.71 per mmBtu for Tuesday.
That front-month to second-month contango rose to a record high for a fourth day in a row with the premium of January futures over December reaching around 32 cents per mmBtu.
That premium could encourage some speculators to leave gas in storage for longer in hope of higher prices later in the winter. Utilities, however, will start to pull gas from storage in mid to late November as daily heating demand for the fuel starts to exceed production.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states rose to 107.1 billion cubic feet per day (bcfd) so far in November, from a record 104.2 bcfd in October.
On a daily basis, after hitting a record 108.0 bcfd on Nov. 4, output was on track to drop by around 2.5 bcfd to a preliminary one-week low of 105.2 bcfd on Tuesday. Traders noted preliminary data is often revised later in the day.
Meteorologists projected the weather would remain mostly warmer than normal through Nov. 22.
But with the weather still turning seasonally cooler with the coming of winter, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 100.3 bcfd this week to 108.3 bcfd next week. Those forecasts were lower than LSEG’s outlook on Monday.
Pipeline exports to Mexico fell to an average of 5.3 bcfd so far in November, down from 6.5 bcfd in October and a record 7.0 bcfd in August. On a daily basis, exports to Mexico were on track to fall to an eight-month low of 4.4 bcfd on Tuesday.
Analysts 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.
New Fortress and Mexico’s PEMEX scrapped a deal in which New Fortress was to install a liquefied natural gas (LNG) production facility at PEMEX’s Lakach gas field in the Gulf of Mexico.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.2 bcfd so far in November, up from 13.7 bcfd in October and a record 14.0 bcfd in April.
That increase in gas flows came even though all three liquefaction trains at the Freeport LNG plant tripped off line in an event lasting several hours on Sunday.
(Reporting by Scott DiSavino; Editing by Alexander Smith)