US natural gas futures fell to a fresh three-week low on Friday on forecasts for the weather to moderate over the next two weeks, keeping both cooling and heating demand low and allowing the amount of gas in storage to rise to normal levels for the winter.
Traders noted the decline in overall demand would come despite an expected increase in liquefied natural gas (LNG) and Mexican exports to record highs. On its first day as the front-month, gas futures for November delivery on the New York Mercantile Exchange were down 5.5 cents, or 2.3%, to $2.388 per million British thermal units at 9:52 am EDT (1352 GMT). On Thursday, the contract closed at its lowest since September 3.
That put the front-month on track to decline for a ninth day in a row for the first time since August 2009. The most losing sessions in a row was 10 in August 2001.
Those days of declines swung the contract from technically overbought territory last week to oversold now with a relative strength index (RSI) below 30. In addition, that drop in the front-month carried over to later-dated futures with calendar 2020 falling enough to briefly put calendar 2021 back into a premium over 2020 for the first time since early September.
For the week, the contract was down about 6%, putting it on track to decline for a second week in a row. Data provider Refinitiv projected gas demand in the lower 48 US states would slide to an average of 83.3 billion cubic feet per day (bcfd) in two weeks as cooling demand declines faster than heating demand rises. That compares with an average of around 83.8 bcfd this week and next.
Those demand forecasts include exports, which analysts said would likely rise as more gas flows to LNG export plants and pipelines to Mexico. Gas flows to LNG plants held around 6.3 bcfd on Thursday, up from a low of 5.7 bcfd last week following the shutdown of Dominion Energy Inc's Cove Point in Maryland for planned maintenance, according to Refinitiv data.
Cove Point remains shut. The extra gas is flowing to other terminals like Freeport LNG's plant in Texas and Cheniere Energy Inc's Sabine Pass in Louisiana. Refinitiv projected flows to LNG terminals could rise to a record high of 7.1 bcfd in two weeks.
Exports to Mexico eased to 5.2 bcfd on Thursday, down from 5.4 bcfd on Wednesday. That compares with a record high of 5.9 bcfd last week after gas started moving through the 2.6-bcfd Valley Crossing pipeline from Texas.
Traders said pipeline flows to Mexico would likely top those record levels soon now that Kinder Morgan Inc's Permian Express pipe in Texas entered service.
Analysts said utilities likely added 100 billion cubic feet (bcf) of gas to storage during the week ended September 27. That compares with an injection of 91 bcf during the same week last year and a five-year (2014-18) average build of 83 bcf for the period.
If correct, that increase would boost stockpiles to 3.305 trillion cubic feet (tcf), 0.9% below the five-year average of 3.335 tcf for this time of year.
The amount of gas in inventory has remained below the five-year average since September 2017. It fell as much as 33% below that in March 2019. But with production near a record high, analysts said stockpiles should reach a near-normal 3.7 tcf by the end of summer injection season on October 31.
Gas production in the lower 48 states, meanwhile, rose to 92.6 bcfd on Thursday from 92.4 bcfd on Wednesday, according to Refinitiv data. That compares with an all-time daily high of 93.0 bcfd on August 19.
In the spot market, next-day gas in New York and New England and power in New England fell to their lowest since November 2017. The premium of spot gas at the US Henry Hub benchmark in Louisiana over Dominion South in southwest Pennsylvania in the Marcellus shale, meanwhile, rose to $1.26 per mmBtu, its highest since October 2018.
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