U.S. natural gas futures eased about 1% on Monday on forecasts for milder weather and less demand next week than previously expected.
The price decline comes despite a reduction in output, record exports to Mexico and a rise in the amount of gas flowing to U.S. liquefied natural gas (LNG) export plants even though some plants were reduced for maintenance.
Front-month gas futures for November delivery on the New York Mercantile Exchange fell 3.3 cents, or 1.1%, to $2.896 per million British thermal units (mmBtu) at 9:58 a.m. EDT (1358 GMT).
Even though the contract was up about 11% last week, speculators switched their futures and options position on the New York Mercantile and Intercontinental Exchanges from net long to net short for the first time since late August, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.
That net short position was also the biggest since March 2023.
Looking ahead, the premium of March 2024 futures over April 2024, which the industry calls the widow maker, slid to 22 cents per mmBtu, its lowest since November 2018.
The industry calls the March-April spread the “widow maker” because rapid price moves resulting from changing weather forecasts have forced some speculators out of business, including the Amaranth hedge fund, which lost more than $6 billion in 2006.
The industry uses the March-April spread to bet on winter weather forecasts since March is the last month of the winter heating season when utilities pull gas out of storage. A smaller March premium generally means the industry expects an easy or mild winter.
SUPPLY AND DEMAND
Financial firm LSEG said average gas output in the lower 48 U.S. states slid to 102.9 billion cubic feet per day (bcfd) in September from a record 103.1 bcfd in August.
On a daily basis, output fell by about 2.0 bcfd over the past four days to a preliminary three-month low of 101.2 bcfd on Monday. Energy traders have noted that preliminary data is often revised later in the day.
Meteorologists forecast the weather in the lower 48 states would turn from warmer than normal through Oct. 6 to mostly near normal from Oct. 7-17.
With milder weather coming, LSEG forecast U.S. gas demand, including exports, would slide from 94.8 bcfd this week to 94.5 bcfd next week. The forecast for next week was lower than LSEG’s outlook on Friday.
Pipeline exports to Mexico rose to a record 7.2 bcfd in September, up from the prior all-time high of 7.1 bcfd in August, according to LSEG data.
Analysts expect exports to Mexico to rise even higher in coming months once New Fortress Energy’s plant in Altamira starts pulling in U.S. gas to turn into liquefied natural gas (LNG) for export.
Gas flows to the seven big U.S. LNG export plants rose to an average of 12.6 bcfd in September, up from 12.3 bcfd in August. That compares with a monthly record of 14.0 bcfd in April.
That increase in LNG feedgas happened despite ongoing maintenance at Berkshire Hathaway Energy’s 0.8-bcfd Cove Point in Maryland and reductions at other plants, including Cheniere Energy’s Sabine Pass in Louisiana and Corpus Christi in Texas.
Cove Point shut for about two weeks of maintenance around Sept. 20.
(Reporting by Scott DiSavino; Editing by Nick Macfie)