U.S. natural gas futures fell more than 5% on Monday on record output and forecasts for mild weather that should limit heating demand.
Front-month gas futures for January delivery on the New York Mercantile Exchange traded 14.2 cents lower, or 5.1%, to $2.67 per million British thermal units at 11:00 a.m. EST (1600 GMT), after hitting a two-month low earlier in the session.
“Supply increases along with the milder weather pattern, which is expected to limit storage withdrawals has resulted in a downside price movement,” said Robert DiDona of Energy Ventures Analysis.
“If we don’t see cold weather in December or January, the chance of prices getting to $3 is limited. For us to see higher prices, storage surplus have to come down, which comes with colder weather.”
With U.S. natural gas production at record highs and ample amounts of fuel in storage, the futures market was sending signals that some traders have already given up hope of extreme price spikes this winter.
Analysts said the mild weather and record output should allow utilities to pull less gas than usual from storage than normal in coming weeks. They forecast U.S. gas stockpiles would end up about 7.2% over normal for this time of year in the week ended Dec. 1.
Financial firm LSEG said average gas output in the Lower 48 U.S. states jumped to a record 108.4 billion cubic feet per day (bcfd) in November, up from the prior all-time high of 104.8 bcfd in October.
LSEG forecast that U.S. gas demand in the Lower 48, including exports, would drop from 129.9 bcfd last week to 122.6 bcfd this week before rising to 125.3 bcfd with the coming of seasonally cooler weather next week.
U.S. energy firms this week added oil and natural gas rigs for a third week in a row, energy services firm Baker Hughes said in its closely followed report on Friday.
“On the supply side, new record production would appear to lie ahead as well efficiencies improve and the rig counts sustain a leveling trend following steady declines into last summer,” said analysts at energy advisory Ritterbusch and Associates in a note.
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 $13 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $16.25 at the Japan Korea Marker (JKM) in Asia JKMc1.
(Reporting by Anjana Anil and Ashitha Shivaprasad in Bengaluru Editing by Marguerita Choy)