U.S. natural gas futures held near a seven-week low on Tuesday on record output that should enable utilities to keep injecting gas into storage for longer than usual through late November.
Utilities usually start pulling gas out of storage to meet heating demand in mid-November. U.S. gas stockpiles were expected to rise from 6% above normal during the week ended Nov. 10 to 7% in the week ended Nov. 17, according to analysts’ estimates.
The lack of price movement seen so far on Tuesday came despite forecasts for colder weather and higher heating demand over the next two weeks than previously expected, and as record amounts of gas flows to liquefied natural gas (LNG) export plants.
Front-month gas futures for December delivery on the New York Mercantile Exchange rose 0.7 cents, or 0.2%, to $2.889 per million British thermal units (mmBtu) at 9:38 a.m. EST (1438 GMT). On Monday, the contract closed at its lowest since Oct. 2.
One factor keeping a lid on futures prices so far 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 186 out of 223 trading days so far this year, according to data from financial firm LSEG. Next-day prices at the Henry Hub were down about 5% to $2.49 per mmBtu for Tuesday.
Analysts have noted that so long as spot prices remain far enough below front-month futures 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.
With production at record highs and ample amounts of gas in storage, the futures market is sending signals that some traders have already given up hope of seeing price spikes this winter (November-March). In fact, prices this winter likely already peaked in early November.
Those bearish price signals include a drop in the premium of futures for January over December to its lowest since November 2022, while the premium of March 2024 futures over April 2024 fell to a record low for a fourth day in a row.
The premium of futures for 2025 over 2024, meanwhile, rose to 80 cents per mmBtu, a fourth record high in a row.
Analysts expect prices to rise in 2025 as gas demand increases once several new LNG export plants enter service in the U.S., Canada and Mexico.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states rose to 107.5 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
On a daily basis, output hit a record 108.9 bcfd on Monday, topping the prior all-time high of 108.6 bcfd on Sunday.
Meteorologists projected the weather would swing from warmer than normal now to colder than normal from Nov. 24-Dec. 1 before turning warmer than normal again from Dec. 3-6.
With colder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 112.5 bcfd this week to 129.7 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Monday.
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 monthly record of 14.0 bcfd in April.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)