NEW YORK: US natural gas futures slid about 2% to a 3-1/2-year low on Tuesday on milder forecasts for weather and heating demand through early March, near record output and a drop in global gas prices to the lowest in months.

Traders also noted US gas inventories remained much higher than normal for this time of year and the amount of gas flowing to liquefied natural gas (LNG) export plants remained low due to ongoing work at Freeport LNG’s plant in Texas.

Analysts forecast gas stockpiles were currently around 22% above-normal levels for this time of year.

Gas prices were down about 37% so far this year, prompting some producers to plan to reduce drilling in 2024. Still, analysts said gas output could still increase because oil prices are high enough to encourage producers to drill in shale basins like the Permian in Texas and New Mexico and the Bakken in North Dakota, areas where oil wells produce a lot of associated gas.

Front-month gas futures for March delivery on the New York Mercantile Exchange fell 3.1 cents, or 1.9%, to $1.578 per million British thermal units (mmBtu) at 11:51 a.m. EST (1651 GMT), putting the contract on track for its lowest close since June 2020, during the height of COVID-19 demand destruction.

With the front-month down 41% over the past three weeks, speculators boosted their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges to the most since March 2020.

Financial company LSEG said gas output in the US Lower 48 states rose to an average of 105.6 billion cubic feet per day (bcfd) so far in February from 102.1 bcfd in January, still shy of the monthly record of 106.3 bcfd in December.

Meteorologists projected weather across the Lower 48 states would remain mostly warmer than normal through March 6, except for a couple of colder than normal days over the weekend of March 2-3.

With milder weather coming, LSEG forecast US gas demand in the Lower 48, including exports, would fall from 130.3 bcfd this week to 117.5 bcfd next week.

The forecast for this week was higher than LSEG’s outlook on the Friday before the long US Presidents Day weekend, while its forecast for next week was lower.

Gas flows to the seven big US liquefied natural gas (LNG) export plants slid to an average of 13.6 bcfd so far in February, down from 13.9 bcfd in January and a monthly record of 14.7 bcfd in December.

Analysts do not expect US LNG feedgas to return to record levels until Freeport LNG is back at full power, which could occur in late February.