U.S. natural gas futures dropped to their lowest in about two months on Friday and were set for a third straight weekly decline with plentiful storage levels to meet demand as the weather was expected to be mild for the time of year.
Front-month gas futures for December delivery on the New York Mercantile Exchange fell 6 cents, or 2.1%, to $2.84 per million British thermal units (mmBtu) by 11:22 a.m. EST (1622 GMT). Prices earlier touched the lowest since Sept. 27 and are down about 4.5% so far this week.
“Weighing on this market has been the warm weather that has been starting to come in,” said Daniel Myers, market analyst at Gelber & Associates in Houston.
“We are in an incredibly healthy position for the upcoming winter and with an El Nino weather pattern materializing, we should see a mild to a mild to warm winter this coming December.”
The U.S. Energy Information Administration (EIA) said utilities pulled 7 billion cubic feet (bcf) of gas from storage during the week ended Nov. 17. That compares with a withdrawal of 60 bcf in the same week last year and a five-year (2018-2022) average decline of 53 bcf.
Financial firm LSEG said average gas output in the Lower 48 U.S. states has risen to 107.6 billion cubic feet per day (bcfd) so far in November, up from a record 104.2 bcfd in October.
With production at record highs and ample gas in storage, the futures market has been sending signals that some traders have given up hope of seeing winter price spikes from November through March.
The narrative of oversupply and depressed pricing is likely to linger through the first half of next year and, potentially, through the entirety of the summer injection season, JPMorgan said in a note.
That, along with the ability for feedgas demand to not only offset but also outpace regional supply growth, will dictate U.S. natural gas markets next year, the bank added, ahead of the expiry of the December 2023 futures contract next week.
LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would fall to 122.3 bcfd next week from 129.7 bcfd this week.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 14.3 bcfd so far in November from 13.7 bcfd in October and a monthly record of 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.
(Reporting by Anjana Anil and Swati Verma in Bengaluru; Editing by Kirsten Donovan)