Front-month gas futures for February delivery on the New York Mercantile Exchange (NYMEX) fell 8.7 cents, or 4.3%, to $1.916 per million British thermal units (mmBtu) by 11:16 a.m. EST (1616 GMT). In intraday trade, the contract fell to its lowest since March 2016.
Futures have collapsed 34% since hitting an eight-month high of $2.905 per mmBtu in early November on expectations inventories will remain over normal levels as near-record production and mild weather enables utilities to leave more gas in storage, eliminating concerns of shortages and price spikes this winter.
Lack of worry about supplies caused speculators last week to boost short positions on the NYMEX to an all-time high, which increased their net shorts on the NYMEX and Intercontinental Exchange to the highest on record, according to U.S. Commodity Futures Trading Commission (CFTC) data going back to 2010.
Looking ahead, analysts forecast gas prices at the Henry Hub benchmark in Louisiana would average $2.33 per mmBtu in 2020, their lowest since 1999. In 2019, average prices fell 18% to $2.57 from a four-year high of $3.15 in 2018.
U.S. gas production will rise to 94.7 billion cubic feet per day (bcfd) in 2020 from a record 92.0 bcfd in 2019 before falling to 94.1 bcfd in 2021 as relatively low prices prompt companies to keep cutting spending on new drilling, according to projections from the U.S. Energy Information Administration.
The weather in the U.S. Lower 48 states so far this winter has been much milder than usual with average daily temperatures 3 degrees Fahrenheit higher than normal in December and five degrees higher during the first few weeks of January.
Data provider Refinitiv projected average demand in the Lower 48 states, including exports, would drop from 131.3 bcfd this week to 119.9 bcfd next week. Traders noted prices collapsed on Tuesday because the outlook for next week is much lower than Refinitiv’s 129.4 bcfd forecast on Friday due to warmer forecasts.
Gas flows to LNG export plants, meanwhile, were expected to rise to a record high 9.4 bcfd on Tuesday from 9.2 bcfd on Monday, according to Refinitiv data. That compares with an average of 7.9 bcfd last week.