U.S. natural gas futures fell about 3% to a fresh near six-month low on Tuesday on record output and forecasts for milder weather and lower heating demand than previously expected that should allow utilities to leave more gas in storage than usual through late December.
Analysts forecast there was currently about 7.8% more gas in storage than usual for this time of year.
Front-month gas futures for January delivery on the New York Mercantile Exchange fell 6.5 cents, or 2.7%, to $2.366 per million British thermal units (mmBtu) at 9:42 a.m. EST (1442 GMT), putting the contract on track for its lowest close since June 14 for a second day in a row.
That kept the front-month in technically oversold territory with a Relative Strength Index (RSI) below 30 for a fifth day in a row for the first time since February.
With record production and ample amounts of gas in storage, futures have been sending bearish signals for weeks that prices this winter (November-March) likely already peaked in November.
The premium of futures for 2029 (five years out) over 2024 rose to a record high for a third day in a row.
Analysts expect prices to rise in coming years as demand for gas grows as several new U.S. liquefied natural gas (LNG) export plants entering service in the U.S., Canada and Mexico.
In 2024, however, analysts started to reduce their U.S. demand forecasts after Exxon Mobil delayed the planned first LNG production at its 2.3-billion cubic feet per day (bcfd) Golden Pass export plant under construction in Texas to the first half of 2025 from the second half of 2024.
In the spot market, meanwhile, next-day prices at the AECO hub in Alberta dropped to their lowest since Oct. 2022.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to 108.4 bcfd so far in December from a record 108.3 bcfd in November.
On a daily basis, output was on track to drop by 2.0 bcfd to a preliminary 107.3 bcfd on Tuesday due mostly to declines in Texas and Oklahoma. If correct, that would be the biggest one-day decline since early November. Analysts, however, have noted that preliminary data is often revised later in the day.
Meteorologists projected the weather would remain warmer-than-normal through Dec. 27.
With the weather turning milder, LSEG forecast U.S. gas demand in the Lower 48, including exports, would slide from 123.7 bcfd this week to 122.8 bcfd next week. The forecast for next week was lower than LSEG’s outlook on Monday.
U.S. pipeline exports to Mexico, meanwhile, fell to an average of 3.8 bcfd so far in December, down from 5.6 bcfd in November and a record 6.9 bcfd in September.
On a daily basis, U.S. exports to Mexico were on track to drop to a preliminary 3.5 bcfd on Tuesday, their lowest since May 2020.
Analysts, however, expect exports to Mexico to rise in coming months once U.S. energy company New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into LNG for export in December.
Gas flows to the seven big U.S. LNG export plants rose to an average of 14.6 bcfd so far in December, up from a record 14.3 bcfd in November.
(Reporting by Scott DiSavino; editing by Grant McCool)