US natgas prices jump 5% to 14-week high on low storage build, rising demand

U.S. natural gas futures jumped about 5% to a 14-week high on Thursday on a smaller-than-expected storage build, forecasts for more demand over the next two weeks than previously expected and a continued decline in output.

The demand forecasts were mostly higher on forecasts for hotter-than-normal weather in mid- to late-May that should boost the amount of gas power generators burn to keep air conditioners humming. An increase in the amount of gas flowing to liquefied natural gas (LNG) export plants on rising feedgas to Freeport LNG’s plant in Texas was also behind the demand forecasts.

The U.S. Energy Information Administration (EIA) said utilities added 79 billion cubic feet (bcf) of gas into storage during the week ended May 3.

That was smaller than the 85-bcf build analysts forecast in a Reuters poll and compares with an increase of 71 bcf in the same week last year and a five-year (2019-2023) average rise of 81 bcf for this time of year.

That increase left gas stockpiles around 33% above normal levels for this time of year.

Front-month gas futures NGc1 for June delivery on the New York Mercantile Exchange rose 10 cents, or 4.6%, to $2.287 per million British thermal units at 10:34 a.m. EDT (1434 GMT), putting the contract on track for its highest close since Jan. 29.

That kept the contract in overbought territory for a fifth day in a row for the first time since October 2023.

A lack of rapid price moves in recent weeks, meanwhile, has cut the front-month’s 30-day implied volatility NGATMIV to 47.8%, its lowest level since February 2022.

The market uses implied volatility to estimate likely price changes in the future. At-the-money 30-day implied volatility, a determinant of an option’s premium, has averaged 59.5% so far in 2024, down from 70.3% in 2023 and a five-year (2019-2023) average of 60.1%.

In the spot market, U.S. power and gas prices turned negative this week in Texas, California and Arizona as pipeline maintenance trapped gas in the Permian Shale in West Texas amid low demand for energy and ample hydropower in the West.

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 96.9 billion cubic feet per day (bcfd) so far in May, down from 98.2 bcfd in April. 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 2.3 bcfd over the past six days to a preliminary 16-week low of 95.5 bcfd on Thursday.

Meteorologists projected weather across the Lower 48 states would go from mostly near-normal levels from May 9-15 to mostly warmer than normal from May 16-24.

LSEG forecast gas demand in the Lower 48, including exports, would slide from 94.0 bcfd this week to 91.8 bcfd next week. Those forecasts were higher than LSEG’s outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants rose from an average of 11.9 bcfd in April to 12.4 bcfd so far in May with the return of Freeport LNG’s plant in Texas from maintenance and inspection work. That compares with a monthly record of 14.7 bcfd in December.

The amount of gas flowing to the 2.1-bcfd Freeport plant was on track to rise to a 16-week high of 1.7 bcfd, up from an average of 1.3 bcfd over the past week and 0.4 bcfd in April.
Source: Reuters (Reporting by Scott DiSavino; Editing by Kirsten Donovan and Emelia Sithole-Matarise)