U.S. Natgas Prices Jump 6% to 3-week High as Output Drops

Front-month gas futures for April delivery on the New York Mercantile Exchange rose 11.7 cents, or 6.4%, to $1.952 per million British thermal units (mmBtu) at 1:05 p.m. EST (1805 GMT), putting the contract on track for its highest close since Feb. 7.

Prices collapsed to an intraday low of $1.511 per mmBtu on Feb. 27, their lowest since June 2020, as near record output, mild weather and low heating demand allowed utilities to leave significantly more gas in storage than usual for this time of year.

Analysts estimate current gas stockpiles at around 31% above-normal levels.

A 14%-increase in gas prices last week prompted speculators to cut their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in six weeks.

That decline in shorts, however, came after speculators boosted those short positions two weeks ago to their highest since March 2020 when futures prices were still plunging.

In the spot market, meanwhile, next-day gas at the Henry Hub benchmark in Louisiana fell to $1.47 per mmBtu, its lowest since October 2020.

SUPPLY AND DEMAND

Financial company LSEG said gas output in the U.S. Lower 48 states fell to an average of 100.6 billion cubic feet per day (bcfd) so far in March, from 104.1 bcfd in February. That compares with a monthly record high of 105.5 bcfd in December 2023.

Traders said the output drop shows that several energy firms, including Chesapeake Energy – soon to be the biggest U.S. gas producer after its merger with Southwestern Energy – were following through on plans to cut gas drilling this year.

Despite the expected reduction in gas drilling, some analysts have warned gas output could still increase this year because oil prices were high enough to encourage producers to drill for oil in shale basins like the Permian in Texas and New Mexico and the Bakken in North Dakota.

The number of rigs drilling for oil rose last week to its highest since November. Shale oil wells in the Permian and Bakken produce a lot of associated gas.29dk2902l

Meteorologists projected the weather across the Lower 48 states would remain mostly warmer than normal through March 17 before turning seasonally normal on March 18-19.

With cooler temperatures coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 111.5 bcfd this week to 113.5 bcfd next week. Those forecasts were lower than LSEG’s outlook on the Friday.

Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants climbed to an average of 13.9 bcfd so far in March, up from 13.7 bcfd in February. That compares with a monthly record of 14.7 bcfd in December.

Analysts do not expect U.S. LNG feedgas to return to record levels until Freeport LNG is back at full power, which some market watchers say could happen in mid-March.

(Reporting by Scott DiSavino; Editing by Richard Chang)

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