U.S. natural gas futures slid about 2% on Thursday as the U.S. market continued its three-day streak of following sharp moves in European gas and global oil prices with the Russia-Ukraine conflict stoking energy supply concerns.
The European market took a break on Thursday, falling as much as 8% earlier in the session, after soaring over 100% since Russia invaded Ukraine on Feb. 24. Gas futures at the Dutch Title Transfer Facility (TTF) were little changed Thursday morning.
In recent months, the U.S. gas market has mostly shrugged off what was happening in Europe, focusing more on domestic weather and supply and demand. Since the start of 2022, gas prices in the United States have moved in the opposite direction of Europe more than half the time.
That is different than during the fourth quarter of 2021 when U.S. futures followed European prices about two-thirds of the time.
But it has been hard for the U.S. market to ignore the massive gains in global gas prices in recent days – especially since those higher prices will keep demand for U.S. liquefied natural gas (LNG) exports strong for months.
No matter how high global gas prices rise, however, the United States, the world’s biggest gas producer, cannot make much more LNG since it was already producing the supercooled fuel at near full capacity.
So, the United States worked with other countries, before the Russian invasion, to ensure that gas supplies, mostly from LNG, would keep flowing to Europe. Russia, the world’s second biggest gas producer, usually provides around 30% to 40% of Europe’s gas, which totaled about 16.3 billion cubic feet per day (bcfd) in 2021.
Thursday’s decline in U.S. gas futures came ahead of a U.S. report expected to show a bigger-than-usual withdrawal from storage last week when colder-than-normal weather boosted heating demand.
Analysts forecast utilities pulled 138 billion cubic feet (bcf) of gas from storage during the week ended Feb. 25. That compares with a decline of 132 bcf in the same week last year and a five-year (2017-2021) average decline of 98 bcf.
If correct, last week’s withdrawal would cut stockpiles to 1.644 trillion cubic feet (tcf), or 13.4% below the five-year average of 1.898 tcf for this time of the year.
Front-month gas futures fell 10.3 cents, or 2.2%, to $4.659 per million British thermal units (mmBtu) at 9:37 a.m. EST (1437 GMT). On Wednesday, the contract closed at its highest since Feb. 3.
U.S. oil prices, meanwhile, soared to their highest since 2008 on Thursday on Russian supply concerns before turning negative on rumors that a nuclear deal with Iran was close, which would allow Iran to export more oil.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states was on track to rise to 93.1 bcfd in March from 92.5 bcfd in February as more oil and gas wells return to service after freezing earlier in the year. That compares with a monthly record of 96.2 bcfd in December.