NEW YORK: US natural gas futures dropped about 5% to a five-week low on Monday on forecasts for demand to drop and output to rise as the weather turns warmer than normal through early February.
That price drop came even though the amount of gas flowing to US liquefied natural gas (LNG) export plants jumped higher after it fell to a one-year low during last week’s Arctic freeze, which also boosted daily gas demand to a record high and cut output to a one-year low by freezing wells.
Front-month gas futures for February delivery on the New York Mercantile Exchange fell 12.8 cents, or 5.1%, to $2.391 per million British thermal units (mmBtu) at 9:28AM EST (1428 GMT), putting the contract on track for its lowest close since Dec. 13.
That also put the contract down for a fifth day in a row for the first time since mid November and pushed it into technically oversold territory for the first time since mid December.
Even though the November-March heating season is only about half way through, one of the biggest signs that the market has given up on future winter price spikes was that futures for March were now trading at a record discount to April of around 3 cents per mmBtu.
March is the last month of the winter storage withdrawal season and April is the first month of the summer storage injection season. Since gas is a primarily a winter heating fuel, traders have said that summer prices should never trade above winter.
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.
With extreme cold and record gas demand early last week, speculators boosted their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to their highest since early November, according to the US Commodity Futures Trading Commission’s Commitments of Traders report.
Financial company LSEG said average gas output in the Lower 48 states fell to 102.8 billion cubic feet per day (bcfd) so far in January, down from a monthly record of 108.0 bcfd in December.
On a daily basis, US gas output was on track to jump by 11.4 bcfd over the past several days to a preliminary 101.9 bcfd on Monday. It had plunged by 17.2 bcfd from Jan. 8-16 to a 12-month low of 90.5 bcfd on Jan. 16, due primarily to freeze-offs and other cold weather events.
Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal from Jan. 23-Feb. 6. With less cold weather coming, LSEG forecast US gas demand in the Lower 48, including exports, would drop from 143.2 bcfd this week to 123.5 bcfd next week. The forecast for this week was higher than LSEG’s outlook on Friday, while its forecast for next week was lower.
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