U.S. natural gas futures climbed more than 3% on Monday, lifted by seasonal demand and as record amounts of gas flowed to liquefied natural gas (LNG) export plants.
Front-month gas futures for January delivery on the New York Mercantile Exchange (NYMEX) were up 7.9 cents, or 3.2%, at $2.57 per million British thermal units (mmBtu) as of 10:29 a.m. EST, (1529 GMT).
“We’re seeing a little bit of weather-based demand creeping onto the maps… There is more hope for the natural gas markets as we continue to see strong exports as the LNG terminals are consuming roughly 15 billion cubic feet a day and that’s going to continue,” said Gary Cunningham, director of market research at Tradition Energy.
Gas flows to the seven big U.S. LNG export plants have risen to an average of 14.7 bcfd so far in December, up from a record 14.3 bcfd in November.
Financial firm LSEG forecast U.S. gas demand in the Lower 48, including exports, at 126.7 bcfd this week, up from last week’s 125 bcfd, buoyed by the usual seasonal cooling at this time of year. However, demand was projected to slide to 122.0 bcfd during the next week when many businesses and government offices shut for the Christmas holiday.
Market participants also took stock of the mounting attacks by the Iran-aligned Yemeni Houthi militant group on ships in the Red Sea that are disrupting maritime trade as leading global freight firms reroute around the Cape of Good Hope to avoid the Suez Canal, which connects the Mediterranean with the Red Sea.
“Given the importance of the Red Sea and Suez Canal as a crucial transit point for both crude oil and natural gas, these suspensions mean that cargos face a lengthy diversion around the Horn of Africa which will add significant costs to company supply chains, as well as having significant inflationary impacts,” Michael Hewson, chief market analyst at CMC Markets, said in a note.
Disruptions to Suez Canal traffic would have only a limited impact on LNG markets as they would not significantly reduce global availability, Goldman Sachs said in a note.
“We note that no Suez-related LNG flow disruption has been reported at this point, to our knowledge, though today’s announcement by BP that it will halt all of its shipments through the Red Sea suggests this is likely to happen to some degree.”
Earlier last week, the front-month was trading in technically oversold territory. Prices were down more than 20% in the month of November.
“Perhaps this is the market’s way of saying – Oops, prices have fallen too far and we need to get them up a bit,” said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City.
“The degree of price uptick depends on how severe the January and February cold weather will be.”
LSEG said average gas output in the Lower 48 U.S. states has risen to 108.4 bcfd so far in December from a record 108.3 bcfd in November.
U.S. gas prices could start rising due to progressive erosion of a domestic inventory overhang and to higher international demand for U.S. gas and LNG, Intesa Sanpaolo said in a note.
“In our baseline scenario, we forecast the first month Henry Hub natural gas future to average $3.2/MMBtu in 2024.”
(Reporting by Sherin Elizabeth Varghese and Ashitha Shivaprasad in Bengaluru; Editing by Paul Simao)