U.S. natural gas prices drop 7% on warmer forecasts for late January
(Reuters) - U.S. natural gas futures dropped about 7% on Monday on forecasts for demand to fall and output to rise once the weather turns warmer than normal in late January.
That futures price drop came even though spot power and gas prices soared to multi-year highs as extremely cold weather this week cut gas supplies and was on track to boost daily gas demand to a record high on Tuesday.
The futures market is trading for February. Looking ahead to February, analysts said the country should have enough production and gas in storage to meet at least normal weather conditions without boosting prices by much.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 24.2 cents, or 7.3%, to $3.071 per million British thermal units (mmBtu) at 12:25 p.m. EST (1725 GMT). On Friday, the contract closed at its highest level since Nov. 3.
That put the front month, which will not close until Tuesday due to the U.S. Martin Luther King holiday on Monday, on track for its biggest daily percentage drop since April 26, 2023, when it fell by 8.2%.
After futures gained 15% for a second week in a row, speculators last week 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.
In the spot market, power prices at the Mid-Columbia hub <EL-PK-MIDC-SNL> in Oregon soared to a record high of $1,075 per megawatt hour.
Next-day gas prices, meanwhile, jumped to $10.40 per mmBtu at the Eastern Gas South hub <NG-PCN-APP-SNL> in Pennsylvania, their highest since July 2008, and $9.72 at the AECO hub <NG-ASH-ALB-SNL> in Alberta in Canada, their highest since February 2014.
In other gas markets, next-day prices hit their highest since the February freeze in 2021, including the U.S. Henry Hub <NG-W-HH-SNL> benchmark in Louisiana at $13.20 per mmBtu, Waha <NG-WAH-WTX-SNL> in West Texas at $17.23 and Chicago <NG-CG-CH-SNL> at $23.35.
SUPPLY AND DEMAND
Financial company LSEG said average gas output in the Lower 48 states fell to 104.8 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.5 bcfd in December.
But on a daily basis, output was on track to drop by 10.6 bcfd over the past week or so to a preliminary 11-month low of 97.1 bcfd on Monday.
That output loss, however, was small compared with losses of 19.6 bcfd during Winter Storm Elliott in December 2022 and 20.4 bcfd during the February freeze in 2021.
Meteorologists projected that the weather in the Lower 48 states would switch from colder than normal from Jan. 15-21 to warmer than normal from Jan. 22-30.
With warmer weather coming, LSEG forecast that U.S. gas demand in the Lower 48, including exports, would drop from 155.3 bcfd this week to 138.8 bcfd next week. Those forecasts were lower than LSEG's outlook on Friday.
On a daily basis, LSEG projected total gas demand, including exports, would reach 173.4 bcfd on Tuesday. That would top the current all-time high of 162.5 bcfd set on Dec. 23, 2022, during Winter Storm Elliott, according to federal energy data from S&P Global Commodities Insights.
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