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U.S. natural gas futures plunged about 10% on Monday in light trade ahead of contract expiration on an extended outage at the Freeport LNG export plant in Texas and forecasts for warmer-than-normal weather to continue through at least mid-February.
Analysts noted the Freeport outage would leave more gas in the U.S. at the same time output is rising as wells return to service after freeze-offs during extreme cold earlier in January.
The mid-January Arctic freeze boosted gas demand to a daily record high and cut both U.S. gas output and liquefied natural gas (LNG) feedgas to one-year lows.
On its last day as the front-month, gas futures for February delivery on the New York Mercantile Exchange were down 27.6 cents, or 10.2%, at $2.436 per million British thermal units (mmBtu) at 11:21 a.m. EST (1621 GMT).
Futures for March, which will soon be the front-month, were down about 9 cents to around $2.09 per mmBtu. If March futures remain at that level when it becomes the front-month, it would be the lowest for the contract since May 2023.
Even though futures gained about 8% last week, speculators switched their futures and options positions on the New York Mercantile and Intercontinental Exchanges to net short from net long, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
Last week’s speculative net change from long to short of around 61,500 contracts was the most in a week since August 2021.
SUPPLY AND DEMAND
Financial company LSEG said gas output in the Lower 48 states fell to an average of 103.6 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 108.0 bcfd in December.
On a daily basis, U.S. gas output was on track to jump by 15.8 bcfd from Jan. 17-29 to a preliminary two-week high of 107.0 bcfd on Sunday.
That was almost enough to replace the 17.2 bcfd drop in output from Jan. 8-16 to a 12-month low of 90.5 bcfd on Jan. 16, which was due primarily to freeze-offs and other cold weather events.
Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal from now through at least Feb. 12. The forecasts for the week of Feb. 4, however, were slightly cooler than the outlook for the week of Jan. 28.
With slightly cooler weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 124.9 bcfd this week to 129.1 bcfd next week. The forecast for next week was higher than LSEG’s outlook on Friday.
Gas flows to the seven big U.S. LNG export plants fell to an average of 13.8 bcfd so far in January, down from a monthly record of 14.7 bcfd in December.
Analysts said U.S. LNG feedgas would likely not return to record levels until U.S. energy firm Freeport LNG’s export plant in Texas returns to full power around mid-February.
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