US natural gas futures fell almost 9% on Wednesday on forecasts for lower demand next week than previously expected and longer-term projections that businesses will use less of the fuel and exports will drop in coming months due to government lockdowns to stop the coronavirus spread.
That price decline comes after gas prices jumped 13% to a 16-week high earlier this week on a sharp decline in output as shale drillers shut oil wells due to the 60% collapse in crude prices so far this year. Those oil wells also produce a lot of gas.
Front-month gas futures for June delivery on the New York Mercantile Exchange fell 19.0 cents, or 8.9%, to settle at $1.944 per million British thermal units. That is the biggest daily percentage drop since January 2019. On Tuesday, the contract closed at its highest since January 14.
Those price increases earlier this week boosted the US front-month over the Title Transfer Facility (TTF) in the Netherlands and the Japan/Korea Marker (JKM), making US gas the most expensive of the world's major benchmarks. That is why some liquefied natural gas (LNG) buyers have canceled US cargoes - because it would cost more to buy gas in the United States than it could be sold for in parts of Europe and Asia - and that does not include fees for shipping or liquefaction.
Most US LNG, however, has already been sold forward years in advance to utilities consuming the fuel, so some US cargoes will likely continue to go to Europe and Asia.
Traders noted the latest price moves marked the point at which the spot market has finally caught up to the forwards market since US gas prices for the summer have been trading over some European and Asian hubs for weeks.
Data provider Refinitiv said US LNG exports averaged 7.0 billion cubic feet per day (bcfd) so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.
Gas output in the US Lower 48 states has averaged 89.8 bcfd so far in May, according to Refinitiv, down from an eight-month low of 92.8 bcfd in April and an all-time monthly high of 95.4 bcfd in November.
With slightly cooler weather coming, Refinitiv projected demand in the Lower 48 states, including exports, would rise from an average of 82.9 bcfd this week to 85.4 bcfd next week. That compares with Refinitiv's forecasts on Tuesday of 82.5 bcfd this week and 86.8 bcfd next week.
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