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US natgas futures drop 4% on record output ahead of storage report

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U.S. natural gas futures dropped about 4% on Thursday on record U.S. output and rising exports from Canada.

Prices declined ahead of a federal report that is expected to show a bigger-than-usual storage build last week when mild weather limited demand for the fuel for both heating and cooling.

The price decline occurred despite record daily exports to Mexico and forecasts for warmer weather over the next two weeks than previously expected that should boost the amount of gas power generators burn to produce electricity for air conditioning.

Analysts forecast U.S. utilities added 106 billion cubic feet (bcf) of gas into storage during the week ended May 26. That compared with an increase of 82 bcf in the same week last year and a five-year (2018-2022) average increase of 101 bcf.

If correct, last week’s increase would boost stockpiles to 2.442 trillion cubic feet (tcf), or 16.5% above the five-year average of 2.097 tcf for the time of year.

Front-month gas futures for July delivery on the New York Mercantile Exchange were down 8.2 cents, or 3.6%, to $2.184 per million British thermal units (mmBtu) at 9:05 a.m. EDT (1305 GMT).

The premium of futures for August over July rose to 9.9 cents per mmBtu, putting it on track to hit an all-time high for a second day in a row after settling at a record 9.2 cents per mmBtu on Wednesday.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to a record 102.5 billion cubic feet per day (bcfd) in May, topping the prior monthly all-time high of 102.2 bcfd in April.

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The amount of gas flowing from Canada to the U.S. was on track to jump to a near four-month high of 9.7 bcfd on Thursday from 8.3 bcfd on Wednesday, according to Refinitiv. That is up from an average of 7.0 bcfd from the May 6-22 period when wildfires in Alberta caused energy firms to cut oil and gas production.

That compares with average Canada-to-U.S. exports of 8.3 bcfd since the start of the year and 9.0 bcfd in 2022. About 8% of the gas consumed in, or exported from, the U.S. comes from Canada.

Gas exports from the U.S. to Mexico, meanwhile, were on track to hit a preliminary 7.7 bcfd on Thursday, which would top the current daily all-time high of 7.3 bcfd set in June 2021. That compares with average U.S.-to-Mexico exports of 5.2 bcfd since the start of the year and 5.7 bcfd in 2022.

Meteorologists projected the weather in the Lower 48 states would remain mostly near normal from June 1-11 before turning warmer than normal from June 12-16.

Refinitiv forecast U.S. gas demand, including exports, would rise from 91.0 bcfd this week to 93.3 bcfd next week as the weather turns seasonally warmer. Those forecasts were higher than Refinitiv’s forecast on Wednesday.

Gas flows to the seven big U.S. LNG export plants fell from a record 14.0 bcfd in April to an average of 13.0 bcfd in May due to maintenance at several facilities.

Last month’s record flows were higher than the 13.8 bcfd of gas the seven big plants can turn into LNG since the facilities also use some of the fuel to power equipment used to produce LNG.

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