U.S. natural gas futures fell about 3% to a one-week low on Friday on rising output, a drop in exports to Mexico and forecasts for mild weather through late October that will keep heating and cooling demand low.
Front-month gas futures for November delivery on the New York Mercantile Exchange fell 10.4 cents, or 3.1%, to $3.240 per million British thermal units (mmBtu) at 10:28 a.m. EDT (1428 GMT), putting the contract on track for its lowest close since Oct. 5.
That put the front-month down for a third day in a row for the first time sine early September and knocked it out of technically overbought territory for the first time in seven days.
For the week, the contract was down about 3% after soaring about 27% over the past two weeks.
Shares outstanding in the U.S. Natural Gas Fund fell by a record amount for a second day this week, falling by 13.8 million on Oct. 11 and 13.6 million shares on Oct. 10, to a six-month low of around 141.3 million shares, according to data from financial firm LSEG. Those two days of declines were worth about $215 million.
The prior biggest two-day drop of 16.2 million shares outstanding in February-March 2023 was worth roughly $148 million.
UNG is an exchange-traded fund (ETF) designed to track the daily price movements of gas. Analysts noted the share sale likely showed speculators taking profits after futures rose to an eight-month high earlier in the week.
In other news, a solar eclipse will pass across a region covering California to Texas on Saturday, Oct. 14, reducing the amount of solar power available for several hours in the middle of the day.
Energy traders, however, noted the overall impact of the lost solar power would be reduced in part because the eclipse was coming on a weekend when many businesses and government offices are closed, which reduces power demand. Most electric grids rely on gas-fired generation to make up for the power lost when solar power declines as the sun goes down.
In 2022, solar provided about 20% of total power generated in California, about 6% in Texas and roughly 5% in Arizona and New Mexico. Gas, meanwhile, was the biggest source of generation across the region, producing about 49% of the power in California, 43% in Texas and 40% in Arizona and New Mexico.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states rose from 102.6 billion cubic feet per day (bcfd) in September to 103.1 bcfd so far in October, which matched the monthly record high set in July.
With seasonally cooler weather coming, LSEG forecast U.S. gas demand, including exports, would rise from 94.3 bcfd this week to 95.6 bcfd next week and 96.3 bcfd in two weeks. The forecast for next week was lower than LSEG’s outlook on Thursday.
Pipeline exports to Mexico fell to 6.9 bcfd so far in October, down from a monthly record high of 7.2 bcfd in September.
Analysts, however, said they expect exports to Mexico to rise 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 13.1 bcfd so far in October with the return of Berkshire Hathaway Energy’s Cove Point export plant in Maryland, up from 12.6 bcfd in September. That compares with a record high of 14.0 bcfd in April.
The U.S. is on track to become the world’s biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar. Much higher global prices have fed demand for U.S. exports due to supply disruptions and sanctions linked to the war in Ukraine.
Gas was trading around $16 per mmBtu at the Dutch Title Transfer Facility (TTF) benchmark in Europe and $14 at the Japan Korea Marker (JKM) in Asia.
(Reporting by Scott DiSavino)