U.S. natgas drops 5% on forecasts for milder weather, lower heating demand
U.S. natural gas futures dropped about 5% to a 21-month low on Monday on forecasts for warmer weather and lower heating demand through the middle of February than previously expected.
Gas prices have also been under pressure in recent weeks by growing beliefs in the market that there was more than enough gas in storage for the rest of the winter and that Freeport LNG’s liquefied natural gas (LNG) export plant in Texas would not start pulling in big amounts of gas until at least March.
On its first day as the front-month, gas futures for March delivery were down 13.5 cents, or 4.7%, from where the March (NGH23) contract closed on Friday to $2.714 per million British thermal units (mmBtu) at 9:53 a.m. EST (1453 GMT), putting the contract on track for its lowest close since April 2021.
That put the front-month down about 13% from where the February contract closed when it was the front-month on Friday.
It also pushed the contract back into oversold territory with a relative strength index (RSI) below 30 for the 14th time this year.
Meteorologists forecast that U.S. weather would remain mostly colder than normal through Feb. 5 before turning warmer than normal through at least Feb. 14.
With milder weather coming, Refinitiv forecast U.S. gas demand, including exports, would drop from 133.3 billion cubic feet per day (bcfd) this week to 129.9 bcfd next week. Those forecasts were much lower than Refinitiv’s outlook on Friday.
That should allow utilities to continue pulling less gas from storage for at least a fourth or even fifth week in a row this year.
The biggest wild card in the gas market remains when Freeport’s export plant will exit a seven-month outage caused by a fire in June 2022.
The market cares about Freeport, the second-biggest U.S. LNG export plant, because traders expect prices to rise once the facility starts pulling in big amounts of gas, boosting overall demand for the fuel. The plant can pull in about 2.1 bcfd of gas and turn it into LNG.
That is about 2% of what U.S. gas producers pull from the ground each day.
The company still has to go back to regulators to get permission to restart the liquefaction trains that turn the gas into LNG for export.
JERA, one of Freeport’s five customers, said it was not counting on getting LNG from the plant by the end of March.
There are also a couple of vessels on their way to Freeport, including LNG Rosenrot (expected to arrive around Feb. 14) and Seapeak Bahrain (Feb. 20).