U.S. natural gas futures fell about 4% to a six-week low on Wednesday on low cash prices, an increase in output so far this month and higher-than-normal amounts of gas in storage.
That price decline occurred despite a drop in gas output in recent days and forecasts for the weather to remain hotter than normal through late July, which should lead power generators to keep burning large amounts of gas to meet demand for air conditioning.
Front-month gas futures for August delivery on the New York Mercantile Exchange (NYMEX) fell 12.3 cents, or 3.7%, to $3.217 per million British thermal units (MMBtu), putting the contract on track for its lowest close since May 28.
The premium of futures for September over August 2025 rose to a record high, meaning some in the market are betting supplies will be lower, demand will be higher and/or there will be less gas in storage compared with normal in September.
Looking forward, the premium of futures for March over April 2026, which the industry calls the widow maker, fell to its lowest since July 2020, while the premium of futures for November over October 2025 rose to a record high.
The industry calls the March-April spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business, including the Amaranth hedge fund, which lost more than $6 billion in 2006.
The industry uses the March-April and October-November spreads to bet on winter weather forecasts and supply and demand since March is the last month of the winter heating season when utilities pull gas out of storage and October is the last month of the summer cooling season when utilities inject gas into storage.
One factor weighing on futures prices over the past few months has been low cash prices. Next-day gas at the U.S. Henry Hub benchmark in Louisiana traded around $3.20 per mmBtu. Spot contracts have traded below front-month futures every day since late April.
Analysts said that so long as spot prices remain far enough below front-month futures to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
Another factor weighing on futures prices in recent months has been the growing surplus of gas in storage over the five-year normal level for this time of year. Analysts projected energy firms added more gas into storage than usual for an 11th time in 12 weeks during the week ended July 4.
Gas stockpiles were already about 6% above normal levels for this time of year.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to 106.7 billion cubic feet per day (bcfd) so far in July, up from a monthly record high of 106.4 bcfd in June.
On a daily basis, however, output was on track to drop by around 3.0 bcfd over the past six days to a preliminary four-week low of 104.5 bcfd on Wednesday. Analysts have noted that preliminary data is often revised later in the day.
With hotter weather expected, LSEG forecast average gas demand in the Lower 48, including exports, would rise from 106.8 bcfd this week to 108.1 bcfd next week. Those forecasts were higher than LSEG’s outlook on Tuesday.
The average amount of gas flowing to the eight big U.S. LNG export plants rose to 15.6 bcfd so far in July as liquefaction units at some plants slowly exit maintenance reductions and unexpected outages. That was up from 14.3 bcfd in June and 15.0 bcfd in May, but remained below the monthly record high of 16.0 bcfd in April.
(Reporting by Scott DiSavino, Editing by Louise Heavens)