U.S. natural gas futures climbed about 4% to a seven-week high on Tuesday on forecasts for extremely cold weather next week that will boost demand to a record high.
In addition to sky-high gas demand, extreme cold could cause production to drop by freezing oil and gas wells, pipes and other energy equipment as happened in Texas in February 2021 and in Appalachia in December 2022. The industry calls freezing wells freeze-offs.
Ahead of that extreme cold, a massive winter storm was moving across the eastern half of the United States. So far, the storm has knocked out power to over 302,000 homes and businesses in nine states.
Front-month gas futures for February delivery on the New York Mercantile Exchange rose 13.1 cents, or 4.4%, to $3.111 per million British thermal units (mmBtu) at 10:09 a.m. EST (1509 GMT), putting the contract on track for its highest close since Nov. 15.
That put the contract up for a sixth day and kept it in technically overbought territory for a third day in a row for the first time since October.
After futures gained 15% last week, speculators cut their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for a third week in a row, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Even though the coldest part of winter is coming, many traders said winter futures for November-March likely already peaked at $3.608 per mmBtu on Nov. 1 due primarily to recent record production and ample supplies of gas in storage.
Analysts said there was currently about 12.2% more gas in storage than normal for this time of year.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states fell to 107.5 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.
On a daily basis, output was on track to drop by 2.1 bcfd to a preliminary three-month low of 106.0 bcfd on Tuesday. Analysts, however, have noted that preliminary data is often revised later in the day.
Meteorologists projected U.S. weather in the Lower 48 states would switch from mostly warmer than normal now to colder than normal from Jan. 13-22 before turning back to warmer than normal from Jan. 23-24.
As use of the fuel for heating soars, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 137.0 bcfd this week to 160.8 bcfd next week. The forecasts for next week were higher than LSEG’s outlook on Monday.
On a daily basis, total U.S. gas demand, including exports, was on track to reach a daily record of 170.0 bcfd on Jan. 15 and 173.7 bcfd on Jan. 16, according to LSEG’s latest forecasts.
Traders noted it would be unusual for gas use to hit a record high on Jan. 15 since it is the U.S. Martin Luther King Day holiday when many businesses and government offices will be shut for a long weekend.
Those daily forecasts were higher than LSEG projected on Monday and would top the current all-time high of 162.5 bcfd set on Dec. 23, 2022 during the winter storm the energy industry calls Elliott, according to federal energy data from S&P Global Commodities Insights.
(Reporting by Scott DiSavino Editing by Ros Russell)