U.S. natgas futures fall 3% to 19-month low on less cold forecasts

U.S. natural gas futures fell 3% on Friday to a 19-month low, on two-week forecasts in the afternoon calling for less cold weather and lower heating demand than previously expected, which should allow utilities to pull less gas from storage than usual for at least a third week in a row.

Also weighing on prices, more traders believed Freeport LNG’s liquefied natural gas (LNG) export plant in Texas would not return to service until February or later after another vessel turned away from the plant this week.

Freeport LNG has said the plant is on track to restart in the second half of January, pending regulatory approvals.

Demand for U.S. natural gas should jump once Freeport returns to service after shutting down in June due to a fire. When operating at full power, the facility can pull in around 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG, about 2% of U.S. daily production.

U.S. gas stockpiles are about 1% above the five-year (2018-2022) average for this time of year. Analysts expect that will rise to about 5% above normal after this week.

Front-month gas futures NGc1 for February delivery fell 10.1 cents, or 3.1%, to settle at $3.174 per million British thermal units (mmBtu), their lowest since June 10. The weekly decline was about 7%, giving the contract five straight weekly losses for the first time since late October. During those five weeks, the contract has lost over 50%.

Meanwhile, recent increases in crude CLc1 futures to a seven-week high boosted oil’s premium over gas to its highest since March 2022. Over the last several years that premium has prompted U.S. energy firms to focus drilling activity on finding more oil instead of gas.

The oil-to-gas ratio, or level at which oil trades compared with gas, jumped to 26-to-1 on Friday. So far in 2023, crude has traded about 21 times over gas, much higher than crude’s average premium of 15 times gas in 2022 and a five-year average (2018-2022) of 20 times. On an energy equivalent basis, oil should trade only six times over gas.

In another sign of fading hopes that extreme cold will eventually supercharge gas prices this winter, the premium on March futures over April, which the industry calls the widow maker, fell to a record low of zero. Gas futures charts were close to falling into contango, with forward prices higher than earlier contracts. Analysts have said that March, the last month of winter when demand for heating fuel is high, should never trade below April, the first month of spring when demand is lower.

“Incredibly, March/April is in danger of trading in contango, which would imply the storage situation is so bloated that the last month of the winter strip March would be trading below the first month of the summer strip April,” said Bob Yawger, director of energy futures at Mizuho, a bank.

With colder weather coming, Refinitiv forecast U.S. gas demand, including exports, would jump from 121.5 bcfd this week to 130.3 bcfd next week and 139.7 bcfd in two weeks. The forecasts for this week and next, however, were lower than Refinitiv’s outlook on Wednesday.
Source: Reuters (Reporting by Scott DiSavino; Editing by Kirsten Donovan and David Gregorio)