NEW YORK: US natural gas futures fell about 3% to a three-week low on Tuesday on forecasts for milder weather and lower heating demand over the next two weeks than previously expected.
On its second to last day as the front-month, gas futures for February delivery on the New York Mercantile Exchange fell 10.4 cents, or 2.8%, to $3.593 per million British thermal units at 7:53 a.m. EST (1253 GMT), putting the contract on track for its lowest close since Jan. 7.
In other trading, the discount of futures for March below April hit a record high on Tuesday. Some analysts said that signals the market has given up on expectations of colder weather and higher prices for the rest of winter.
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 primarily a winter heating fuel, traders have said summer should not trade above winter because demand for the fuel is generally higher during winter months.
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.
To meet record gas demand during extreme cold during the week ended Jan. 24, analysts projected energy firms pulled 317 billion cubic feet (bcf) out of storage.
If correct, that would only be the fourth time utilities pulled over 300 bcf of gas out of storage in a week, but would fall short of the record 359 bcf withdrawn during a freezing week in January 2018.
Analysts noted last week’s decline should erase the small surplus of gas still in storage over the five-year average for the first time since January 2022, and could boost total withdrawals for the month to a record high. The current record monthly storage withdrawal is 994 bcf in January 2022, according to federal energy data.
Financial firm LSEG said average gas output in the Lower 48 US states fell from 103.8 billion cubic feet per day (bcfd) in December to 102.1 bcfd so far in January, due mostly to freezing oil and gas wells and pipes, known as freeze-offs. That compares with a monthly record of 104.6 bcfd in December 2023.
Freeze-offs from Jan. 18-21 cut output by 6.9 bcfd to a one-year low of 96.9 bcfd on Jan. 21. Almost all of that curtailed output - about 6.4 bcfd - was on track to be back in service on Tuesday.
In past years, freeze-offs cut output by roughly 8.1 bcfd from Jan. 9-16 in 2024, 4.6 bcfd from Jan. 31-Feb. 1 in 2023, 15.8 bcfd from Dec. 20-24 in 2022, and 20.4 bcfd from Feb. 8-17 in 2021, according to LSEG data.
Meteorologists projected weather in the Lower 48 states would remain mostly warmer than normal through Feb. 12.
With the mild weather coming, LSEG forecasts average gas demand in the Lower 48 states, including exports, would fall from 137.2 bcfd this week to 131.0 bcfd next week. Those forecasts were lower than LSEG’s outlook on Monday.
On a daily basis, LSEG said total gas use during last week’s extreme cold peaked at 173.3 bcfd on Jan. 20 and 181.2 bcfd on Jan. 21, easily topping the prior daily record high of 168.4 bcfd on Jan. 16, 2024.
The amount of gas flowing to the eight big US LNG export plants rose to an average of 14.6 bcfd so far in January, up from 14.4 bcfd in December. That compares with a monthly record high of 14.7 bcfd in December 2023.
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