U.S. natgas prices drop 6% to one-week low on small storage withdrawal, mild weather

(Reuters) - U.S. natural gas futures dropped about 6% to a one-week low on an expected much smaller-than-usual storage withdrawal last week when warmer-than-normal weather kept heating demand low.

Traders also noted prices were down as the amount of gas flowing to LNG export plants remained low due to an ongoing outage at Freeport LNG's plant in Texas.

That price decline came despite a drop in output over the past month after gas prices collapsed to a 3-1/2-year low in February and forecasts for cooler weather and more heating demand over the next two weeks than previously expected.

Even though the forecasts called for a little cooler in coming weeks, meteorologists forecast the weather across the Lower 48 U.S. states would still remain mostly warmer than normal through at least March 18.

The U.S. Energy Information Administration (EIA) said utilities pulled 40 billion cubic feet (bcf) of gas out of storage during the week ended March 1.

That was in line with the 40-bcf withdrawal that analysts forecast in a Reuters poll and compares with a decrease of 72 bcf in the same week last year and a five-year (2019-2023) average decline of 93 bcf for this time of year. [EIA/GAS][NGAS/POLL]

That decrease left gas stockpiles about 31% above normal levels for this time of year. Analysts projected that storage surplus would grow in coming weeks as mild weather keeps heating demand low.

"Many analysts are projecting another small withdrawal next week, with some models even reflecting an (unusual) injection into working gas stocks rather than a withdrawal," analysts at energy consulting firm Gelber and Associates said in a note.

Front-month gas futures <NGc1> for April delivery on the New York Mercantile Exchange fell 11.1 cents, or 5.8%, to settle at $1.818 per million British thermal units (mmBtu), their lowest close since Feb. 27.

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

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 fell to an average of 100.1 billion cubic feet per day (bcfd) so far in March, down from 104.1 bcfd in February. That compares with a monthly record of 105.5 bcfd in December 2023.

On a daily basis, output was on track to drop by around 4.8 bcfd over the last month to a preliminary seven-week low of 99.0 bcfd. That would be the lowest daily production since early February 2023, excluding the massive 17.3-bcfd drop in mid-January due to freezing wells.

Traders said the output drop showed that several energy firms, including Chesapeake Energy<CHK.O>, soon to become the biggest U.S. gas producer after its merger with Southwestern Energy<SWN.N>, were following through on plans to cut gas drilling this year.

EQT<EQT.N>, currently the biggest U.S. gas producer, said on Monday that it would curtail nearly 1 bcfd of production through March.

With seasonally warmer weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would ease from 111.6 bcfd this week to 110.9 bcfd next week. Those forecasts were higher than LSEG's outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants slid to an average of 13.4 bcfd so far in March, down from 13.7 bcfd in February. That compares with a monthly record of 14.7 bcfd in December.

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