U.S. natural gas futures slipped on Friday and were set to end the year with the biggest percentage fall since at least 2006, under pressure from record production, ample inventories in storage, and relatively mild weather conditions.
Front-month gas futures for February delivery on the New York Mercantile Exchange were down 4 cents, or 1.5%, at $2.52 per million British thermal units as of 10:05 a.m. EST.
The front-month contract has fallen more than 43% so far in 2023, its first annual fall in two years, which is also set to be the biggest fall since 2006. The contract has also lost more than 10% so far this month in a second consecutive monthly loss.
Prices have fallen sharply from around $10 per mmBtu reached last year on a Russia-Ukraine war-fueled rally, but as those concerns eased futures started 2023 at around the $4 level before declining further as drillers ramped up production.
Prices are “reflecting very bearish market fundamentals, which are record production, weak demand thanks to the warmer than normal weather, and weak foreign demand as well,” said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City.
“We are projecting a storage level at the top of the five year band at the end of the coming injection season,” Zhen added, saying if this turns out to be true, prices will have no hope of going anywhere in the New Year, unless abnormal weather and production conditions prevail.
Data from LSEG showed average gas output in the Lower 48 U.S. states has risen to 103.5 bcfd so far in 2023 from a record 98.4 bcfd in 2022.
The continental United States also entered the winter heating season with the most natural gas in storage since 2020, the U.S. Energy Information Administration (EIA) said earlier this month.
U.S. utilities pulled a 87 billion cubic feet (bcf) of natural gas out of storage last week, according to the weekly EIA report. Stockpiles stood at 3.490 trillion cubic feet (tcf), about 11.1% above the same week a year ago and 10% above the five-year average.
LSEG forecast U.S. gas demand in the Lower 48, including exports, at 129.7 billion cubic feet per day (bcfd) this week, up from last week’s 119.5 bcfd. Demand was further projected to rise to 136.9 bcfd during next week as forecasts for January get colder.
“The natgas market’s outlook depends on what kind of weather we’re going to have in the first quarter,” said Thomas Saal, senior vice president for energy at StoneX Financial.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 14.6 bcfd so far in December, up from a record 14.3 bcfd in November.
(Reporting by Sherin Elizabeth Varghese, Ashitha Shivaprasad and Swati Verma in Bengaluru. Editing by Jane Merriman)