U.S. natural gas futures fell about 3% on Thursday on a bigger-than-expected weekly storage build and on record output that should enable utilities to keep injecting gas into storage through at least late November.
Utilities usually start pulling gas out of storage to meet heating demand in mid-November.
The U.S. Energy Information Administration (EIA) said utilities added 60 billion cubic feet (bcf) of gas into storage during the week ended Nov. 10 after pulling 6 bcf out of storage during the week ended Nov. 3. The withdrawal during the colder-than-normal week ended Nov. 3 was the first withdrawal of the 2023-2024 winter season.
The injection during the week ended Nov. 10 was bigger than the 40-bcf build analysts forecast in a Reuters poll and compares with an increase of 66 bcf in the same week last year and a five-year (2018-2022) average increase of 20 bcf.
Analysts said utilities were able to add gas into storage during the week ended Nov. 10 because mild weather limited heating demand. Looking ahead, analysts said record output would likely allow utilities to keep injecting gas into storage during the weeks ended Nov. 17 and Nov. 24 if output remains at record highs.
EIA did not release its weekly gas storage report last week due to a planned systems upgrade.
Front-month gas futures for December delivery on the New York Mercantile Exchange fell 10.3 cents, or 3.2%, to $3.087 per million British thermal units (mmBtu) at 10:40 a.m. EST (1540 GMT).
In a sign that some in the market were giving up on the possibility of higher prices from extreme cold weather later this winter, the premium of futures for January over December fell to just 16 cents per mmBtu, its lowest since November 2022.
Based on current futures, the gas market may have already hit its highest price this winter in early November when the front-month closed at $3.52 per mmBtu on Nov. 3. It is actually not that unusual for the highest price of the winter to occur in November.
In fact four of the highest prices seen during the heating season over the past five years occurred during November rather than January, which is traditionally the coldest month of the year. Traders noted that is because the anticipation of extreme cold is usually worse than the actual weather itself.
The highest winter prices were $7.31 per mmBtu on Nov. 23, 2022, during the winter of 2022-2023; $6.27 on Jan. 27, 2022, during the winter of 2021-2022; $3.24 on Nov. 2, 2020, during the winter of 2020-2021; $2.86 on Nov. 5, 2019 during the winter of 2019-2020; and $4.84 on Nov. 14, 2018, during the winter of 2018-2019.
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to 107.2 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
Over the past four days, however, output was on track to drop by about 2.4 bcfd to a preliminary one-week low of 106.1 bcfd on Thursday.
Meteorologists projected the weather would remain warmer than normal through Nov. 21 before turning close to colder than normal from Nov. 22-Dec. 1.
With colder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would rise from 112.2 bcfd this week to 113.8 bcfd next week. The forecast for this week was higher than Refinitiv’s outlook on Wednesday.
Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants rose to an average of 14.2 bcfd so far in November, up from 13.7 bcfd in October and a monthly record of 14.0 bcfd in April.
(Reporting by Scott DiSavino; editing by Jonathan Oatis and Marguerita Choy)