U.S. natural gas futures gained about 2% to a one-week high on Wednesday on a decline in daily output and forecasts for colder weather in mid January than previously expected.
That price increase came despite forecasts for milder weather and lower heating demand this week and next than previously expected, and a small decline in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants.
Traders noted mild weather this week and next should enable utilities to keep pulling less gas from storage in coming weeks because heating demand is currently lower than usual.
Analysts forecast there was about 11.6% more gas in storage than normal at this time of year.
Front-month gas futures for February delivery on the New York Mercantile Exchange were up 4 cents, or 1.6%, at $2.608 per million British thermal units (mmBtu) at 8:47 a.m. EST (1347 GMT), putting the contract on track for its highest close since Dec. 27.
A lack of big price moves in recent weeks has cut historic or actual 30-day close-to-close futures volatility to 44.6%, the lowest since September 2021 for a second day in a row.
Historic daily volatility hit a record high of 177.7% in February 2022 and a record low of 7.3% in June 1991. Historic volatility has averaged 44.8% so far this year, versus 70.5% in 2023 and a five-year (2019-2023) average of 64.3%.
Even though late January is usually the coldest part of the year, 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.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the lower 48 U.S. states has slid to 107.5 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.
Meteorologists projected the weather would remain mostly near to warmer than normal through Jan. 12 before turning colder than normal from Jan. 13-18.
With colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 132.7 bcfd this week to 133.7 bcfd next week. Those forecasts were lower than LSEG’s outlook on Tuesday.
U.S. pipeline exports to Mexico have fallen to an average of 4.2 bcfd so far in January, down from 4.6 bcfd in December and a monthly record 7.0 bcfd in August.
Analysts expect exports to Mexico to rise in coming months once U.S.-based New Fortress Energy’s plant in Altamira in Mexico starts pulling in U.S. gas to turn into LNG for export.
Gas flows to the seven big U.S. LNG export plants have slid to an average of 14.6 bcfd so far in January, down from a monthly record of 14.7 bcfd in December.
The U.S. became the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices fed demand for more exports due in part to supply disruptions and sanctions linked to Russia’s war in Ukraine.
Gas was trading around $10 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $11 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; Editing by Jan Harvey)