US natural gas futures settled slightly higher on Monday, having earlier fallen as much as 3% on expectations of higher gas production and cooler temperatures, as ongoing hot weather lifted prices. Front-month gas futures gained 1 cent, or 0.5%, to settle at $2.210 per million British thermal units, after falling to $2.134 per mmBtu earlier in the session.
"Hot weather is lifting gas demand early this week and will lead to one last burst of near-peak summer power demand," Daniel Myers, market analyst at Gelber & Associates in Houston, said in a report. "However, the market is looking beyond this period as updated forecasts predict that cooler temperatures in the Midwest and East will take over in the mid-range and carry into early September."
Analysts said gas futures had traded near multiyear lows since May because record production and mild spring weather allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing concerns about shortages this winter even though power demand and liquefied natural gas (LNG) exports are on track to hit all-time highs.
The market expects a lot more supply and a surge in production in the coming weeks, said Phil Flynn, senior analyst at Price Futures Group in Chicago. "The summer is almost over and the market seems to believe that once we get into the cooler weather, the natural gas market is going to be overwhelmed with supply."
Refinitiv data showed that in the Lower 48 states, gas production rose to an all-time high of 92.2 bcfd on Sunday from 92.1 bcfd the previous day. Output scaled a record high even though a section of Enbridge Inc's Texas Eastern pipeline remained shut in Kentucky after an explosion on August 1 that killed one person. The company said it planned to restore service on one of the three lines near the blast site from August 24 to 26.
The amount of gas in inventory has remained below the five-year average, however, since September 2017. It fell as low as 33% below that average in March 2019. But with production expected to keep growing, analysts said, stockpiles should reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on October 31.
Refinitiv data projected demand in the Lower 48 would fall to 87.9 bcfd next week from 91.1 bcfd this week, but indicated 193 cooling degree days (CDDs) in the Lower 48 US states over the next two weeks. The normal is 172 CDDs for this time of year. CDDs measure the number of degrees a day's average temperature is above 65 degrees Fahrenheit (18 degrees Celsius) and are used to estimate demand to cool homes and businesses.
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