U.S. natural gas futures slid more than 10% to a near six-month low on Monday, hurt by ample output while mild weather limited heating demand.
Front-month gas futures for January delivery on the New York Mercantile Exchange fell 28.1 cents, or 10.9%, to $2.30 per million British thermal units (mmBtu) at 0941 a.m. EST (1441 GMT), its lowest levels since June.
The fundamental reasons why the prices are dropping drastically are “record production, higher Canadian exports, lukewarm and late arriving domestic demand, and high foreign gas storage levels,” said Zhen Zhu, managing consultant at C.H. Guernsey and Co in Oklahoma City.
“I believe the market is betting against a colder than normal winter in January and February, but the market may be reasonable as most of longer term weather forecasts are calling for a warmer than normal if not normal remaining winter.”
With record production levels and ample storage, gas futures have been sending bearish signals for weeks that prices for this winter (November-March) likely already peaked in November. The contract was down about 8% last week.
Financial firm LSEG said average gas output in the Lower 48 U.S. states was at 108.5 bcfd so far in December from a record 108.3 bcfd in November.
Traders have noted that mild weather and near record output should cap the amount of gas utilities pull from storage in coming weeks.
The continental United States entered the winter heating season with the most natural gas in storage since 2020, the U.S. Energy Information Administration (EIA) said last week.
“Further price decline to the $2.20 area and ultimately toward the $2 mark would appear to be the most likely course given this unusually mild start to the heavy usage cycle,” said analysts at energy advisory Ritterbusch and Associates in a note.
LSEG forecast U.S. gas demand in the Lower 48, including exports, would stay steady at 123.8 bcfd next week from 123.7 bcfd forecast this week.
U.S. energy firms last week added oil and natural gas rigs for a fourth week in a row for the first time since November 2022, energy services firm Baker Hughes said in its closely followed report on Friday.
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 $11 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $15.98 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Anjana Anil and Ashitha Shivaprasad in Bengaluru; Editing by Sharon Singleton)