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U.S. natural gas futures fell about 4% on Monday on record output and forecasts for milder weather and lower heating next week than previously expected.
On its first day as the front-month, gas futures for December delivery on the New York Mercantile Exchange fell 14.6 cents, or 4.2%, from where that contract traded on Friday to $3.337 per million British thermal units (mmBtu) at 10:21 a.m. EDT (1421 GMT) on Monday.
That, however, was still up about 5% from where the November contract closed when it was still the front-month on Friday.
It also put the contract on track for its highest close since Oct. 12 and pushed it into technically overbought territory for the first time since mid-October.
Even though the front-month gained about 9% last week, speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges for a second week in a row to their lowest since early October, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
One bearish factor that has weighed on the futures market for most of this year has been lower spot or next-day prices at the Henry Hub benchmark in Louisiana. The spot market has traded below front-month futures for 172 out of 207 trading days so far this year, according to data from financial firm LSEG.
Next-day prices at the Henry Hub gained about 13% to around $3.24 per mmBtu for Monday.
Analysts have noted that so long as the futures market remains in contango and spot prices remain far enough below the front-month to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to an average of 104.1 billion cubic feet per day (bcfd) so far in October, up from 102.6 bcfd in September and a record high of 103.1 bcfd in July.
Meteorologists forecast the weather will turn from colder than normal now to mostly near normal from Nov. 3-14.
With milder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would drop from 109.2 bcfd this week to 104.2 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Friday, but its forecast for next week was much lower.
Pipeline exports to Mexico slid to an average of 6.8 bcfd so far in October, down from a monthly record high of 7.2 bcfd in September.
Analysts, however, expect exports to Mexico to rise in coming months once U.S. energy company New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export in November.
Gas flows to the seven big U.S. LNG export plants rose to 13.7 bcfd so far in October, up from 12.6 bcfd in September but still below a monthly record high of 14.0 bcfd in April.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due in part to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $16 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $18 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino; editing by Jonathan Oatis)
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