U.S. natgas falls 4% to 10-week low on oil price drop, mild forecasts
U.S. natural gas futures fell about 4% to a fresh 10-week low on Friday on a drop in crude prices and expectations the weather will remain mild into early October, keeping both heating and cooling demand low and allowing utilities to inject lots of gas into storage over the next few weeks.
In addition, the U.S. National Hurricane Center (NHC) projected that Tropical Depression 9 will strengthen into a hurricane as it moves from the Caribbean Sea to the Gulf of Mexico over the next few days before hitting South Florida on Wednesday.
With much of the nation’s gas production located away from the Gulf of Mexico in shale basins like the Permian in West Texas and Appalachia in Pennsylvania, analysts said tropical storms were more demand-destroying events since they knock out power and can cause liquefied natural gas (LNG) export terminals to shut.
Another factor weighing on gas prices was the expectation that demand would decline in October when the Cove Point LNG plant in Maryland shuts for a couple weeks of maintenance. Cove Point is consuming about 0.8 billion cubic feet per day (bcfd) of gas.
U.S. gas use has already been reduced for months by the ongoing outage at the Freeport LNG export plant in Texas which has left more gas in the United States for utilities to inject into stockpiles for next winter.
Freeport, the second-biggest U.S. LNG export plant, was consuming about 2 bcfd of gas before it shut on June 8. Freeport LNG expects the facility to return to at least partial service in early to mid-November.
In Puerto Rico, meanwhile, an estimated 927,000 homes and businesses remain without power after Hurricane Fiona hit on Sunday.
Front-month gas futures NGc1 fell 26.1 cents, or 3.7%, to settle at $6.828 per million British thermal units (mmBtu), their lowest close since July 14.
Oil prices plunged about 5% to an eight-month low as the U.S. dollar hit its strongest level in more than two decades and on fears rising interest rates will tip major economies into recession. O/R
The gas price drop keptgas futures in technically oversold territory with a relative strength index (RSI) below 30 for a second day in a row.
For the week, the gas contract fell about 12%, its biggest weekly percentage decline since June. That was also the first time the front-month fell for five weeks in a row since January 2019.
Analysts at energy consulting firm EBW Analytics said recent gas price declines caused gas prices to fall below ethane prices, which should cause energy firms to capture ethane rather than rejecting it into gas pipes. That should reduce the amount of total gas (plus ethane) available to the market.
Despite recent declines, gas futures were still up about 83% so far this year as higher prices in Europe and Asia keep demand for U.S. LNG exports strong. Global gas prices have soared due to supply disruptions and sanctions linked to Russia’s Feb. 24 invasion of Ukraine.
Gas was trading around $51 per mmBtu in Europe TRNLTTFMc1 and $38 in Asia JKMc1.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 98.7 bcfd so far in September from a record 98.0 bcfd in August.
With cooler autumn weather coming, Refinitiv projected average U.S. gas demand, including exports, would slip from 92.4 bcfd this week to 91.4 bcfd next week and 88.7 bcfd in two weeks. The forecasts for next week was higher than Refinitiv’s outlook on Thursday.
The average amount of gas flowing to U.S. LNG export plants rose to 11.3 bcfd so far in September from 11.0 bcfd in August. That compares with a monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.