U.S. natural gas futures eased about 1% to a fresh two-week low on Thursday on record output and forecasts for mild weather through late November that should limit heating demand and allow 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 were down 2.8 cents, or 0.9%, to $3.078 per million British thermal units (mmBtu) at 9:18 a.m. EST (1418 GMT), putting the contract on track for its lowest close since Oct. 25 for a third day in a row.
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. EIA will resume its regular schedule next week. Analysts forecast utilities pulled about seven billion cubic feet of gas from storage during the week ended Nov. 3, the first withdrawal of the 2023/2024 winter season.
One bearish factor that has weighed on the futures market for much 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 179 out of 215 trading days so far this year, according to data from financial firm LSEG.
Next-day prices for Thursday at the Henry Hub were up about 9% to $2.18 per mmBtu.
Analysts have said that so long as the futures market stays in contango – with prices in the second-month higher than the front-month – 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 has risen to 107.0 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
Meteorologists projected the weather would remain mostly warmer than normal through Nov. 24. Despite those forecasts, temperatures are still declining with the coming of winter.
LSEG forecast that cooler weather would cause U.S. gas demand in the Lower 48 states, including exports, to jump from 101.6 bcfd this week to 107.8 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Wednesday, while its forecast for next week was lower.
Pipeline exports to Mexico have fallen 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 drop to an eight-month low of just 4.4 bcfd on Thursday.
Analysts, however, expect U.S. exports to Mexico to rise by the end of the year once the first 0.18-bcfd liquefaction train at U.S.-based New Fortress Energy’s plant in Altamira in Mexico starts pulling in U.S. gas to turn into LNG for export.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 14.1 bcfd so far in November, up from 13.7 bcfd in October and a record 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 $17 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; Editing by Paul Simao )