NEW YORK: US natural gas futures fell by about 5% on Wednesday to the lowest in nearly three months, pressured by a drop in oil prices, near-record US gas output and forecasts for mostly mild weather through late December that should dent heating demand.
Analysts forecast US gas stockpiles were about 7.2% above normal levels for this time of year.
Front-month gas futures for January delivery on the New York Mercantile Exchange fell 12.9 cents, or 4.8%, to $2.581 per million British thermal units (mmBtu) at 12:04 p.m. EST (1704 GMT), on track for its lowest close since Sept. 7.
Oil prices dropped about 4% on a big rise in US gasoline inventories.
The futures market has been sending signals for weeks that many traders do not expect price spikes this winter (November-March) due to record production and ample amounts of gas in storage. Many in the market think futures for this heating season peaked in November.
The biggest sign the market has given up on higher prices during this winter was the collapse of the premium of March 2024 futures over April 2024 to a record low of just one cent per mmBtu.
The industry calls the March-April spread the “widow maker” because rapid price moves on changing weather forecasts have forced some speculators out of business, including the Amaranth hedge fund, which lost more than $6 billion in 2006.
In the spot market, cold weather in New England boosted next-day power to $117.25 per megawatt hour and gas to $13.04 per mmBtu, their highest levels since February.
Power and gas prices often soar when it turns cold in New England, where pipeline constraints limit the amount of gas that can reach region. Most of it is used to heat homes and businesses, so power plants must switch to more expensive fuels like oil and liquefied natural gas (LNG).
In 2022, about 54% of power generated in New England came from gas-fired plants with the rest coming from nuclear (27%), hydro (7%), other (5%), wind (4%), oil (2%) and solar (1%).
Financial firm LSEG said average gas output in the Lower 48 US states slid to 107.5 billion cubic feet per day (bcfd) so far in December from a record 107.8 bcfd in November. Daily output was on track to drop by 2.1 bcfd over the past three days to a preliminary four-week low of 106.2 bcfd on Wednesday.
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