US Natgas Futures Hold Near 3-Month High on Hot Forecasts

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U.S. natural gas futures held near a three-month high on Tuesday on a drop in output and forecasts that hot weather over the next two weeks will force generators to burn lots of gas to produce power for air conditioning, especially in Texas.

Prices held steady despite forecasts for less demand over the next two weeks than previously expected as the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants declines due to maintenance outages at several facilities.

Power prices in Texas soared on expectations that demand would break records as homes and businesses crank up their air conditioners to escape the first heat wave of the 2023 summer season.

That will boost the amount of gas burned by power generators since Texas gets most of its power from gas. In 2022, about 49% of the state’s power came from gas-fired plants, with most of the rest from wind (22%), coal (16%), nuclear (8%) and solar (4%), according to federal energy data.

After rising for five days in a row, front-month gas futures for July delivery on the New York Mercantile Exchange (NYMEX) remained unchanged at $2.629 per million British thermal units (mmBtu) at 9:40 a.m. EDT (1340 GMT).

On Friday before the Juneteenth holiday on Monday, the contract closed at its highest since March 7.

Despite the lack of price movement, the contract remained in technically overbought territory with a relative strength index (RSI) above 70 for a third day in a row for the first time since July 2022.

When prices rose 8% on June 15, total futures volume on the NYMEX jumped to a one-year high of 725,962 contracts.

With the front-month up about 17% last week, speculators switched their futures and options positions on the New York Mercantile and Intercontinental Exchanges to net long from net short, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.

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In Europe, meanwhile, gas prices at the Dutch Title Transfer Facility (TTF) benchmark remained extremely volatile, soaring by about 12% on Tuesday after plunging by 22% on Friday.

SUPPLY AND DEMAND

Data provider Refinitiv said average gas output in the U.S. Lower 48 states fell to 101.6 billion cubic feet per day (bcfd) so far in June, down from a monthly record of 102.5 bcfd in May.

Meteorologists forecast the weather would turn from mostly near normal from June 20-23 to hotter than normal from June 24-July 5.

With hot weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 94.0 bcfd this week to 98.9 bcfd next week. Those forecasts were lower than Refinitiv’s outlook on Friday.

U.S. exports to Mexico, meanwhile, rose to an average of 6.6 bcfd so far in June, up from 6.2 bcfd in May. That compares with a monthly record high of 6.7 bcfd in June 2021.

Gas flows to the seven big U.S. LNG export plants fell to an average of 11.5 bcfd so far in June from 13.0 bcfd in May.

That is well below the monthly record high of 14.0 bcfd in April due to maintenance at several facilities, including Cheniere Energy Inc’s Sabine Pass in Louisiana and Freeport LNG in Texas.

The record flows in April 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.