U.S. natgas futures fall 4% on rising output, mild forecasts

U.S. natural gas futures fell about 4% to a three-week low on Monday as output slowly rises and on forecasts for the weather to remain milder than normal through early November. The decline came despite a slow but steady increase in U.S. LNG exports. Global gas prices were up 17%  as utilities in Europe and Asia scrambled to fill inventories before the winter heating season.

But no matter how high global prices rise, the United States was already close to producing LNG at full capacity. In addition, U.S. gas stockpiles, unlike those in Europe, were in good shape for the winter, with more than enough fuel available for the heating season.

Even so, U.S. oil and gas prices have followed global gas prices higher in recent months and are currently trading at or near multi-year highs. Analysts expect U.S. gas inventories will top 3.5 Tft³ by the start of the winter heating season in November, which they said would be a comfortable level even though it falls short of the 3.7 Tft³ five-year average.

In Europe, analysts say stockpiles are about 15% below normal for this time of year. Front-month gas futures for November delivery were down 22.9 cents, or 4.2%, to $5.181 per MMbtu at 8:24 a.m. EDT , putting the contract on track for its lowest close since Sept. 24.

Speculators cut their net long positions on the New York Mercantile and Intercontinental Exchanges for a second week in a row last week to their lowest since April 2021, according to data from the Commodity Futures Trading Commission (CFTC). Some traders cashed in their winnings after the front-month rose to its highest since December 2008 during the prior week, analysts said. The premium of futures for December over November meanwhile rose to its highest since April 2011. 

Data provider Refinitiv said gas output in the U.S. lower 48 states has risen to an average of 92.0 Bft³ so far in October from 91.1 bcfd in September. That compares with a monthly record of 95.4 Bft³ in November 2019. Refinitiv projected average U.S. gas demand, including exports, would rise from 86.6 Bft³ this week to 89.7 Bft³ next week as the weather turns seasonally cooler and more homes and businesses turn on their heaters.  

Those forecasts were higher than Refinitiv expected on Friday. With gas prices near $36 per MMbtu in Europe and $34 in Asia, versus around just $5 in the United States, traders said buyers around the world will keep purchasing all the LNG the U.S. could produce. 

Refinitiv said the amount of gas flowing to U.S. LNG export plants averaged 10.4 Bft³/d so far in October, the same as in September, but was expected to rise in coming weeks as more liquefaction trains exit maintenance outages. But the United States only has capacity to turn about 10.5 Bft³/d of gas into LNG. Global markets will have to wait until later this year to get more, when the sixth liquefaction train at Cheniere Energy Inc's Sabine Pass and Venture Global LNG's Calcasieu Pass in Louisiana are expected to start producing LNG in test mode.

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