US natural gas futures fell more than 1% on Wednesday after hitting a five-month peak early in the week as gas followed the falling oil market and demand concerns. Front-month gas futures for October delivery on the New York Mercantile Exchange (NYMEX) fell 3 cents, or 1.2%, to settle at $2.637 per million British thermal units (mmBtu) at 02:44 pm EDT (1844 GMT). On Monday, the contract closed at $2.681, its highest since April 10.
The contract, which has been rising steadily since early August on warmer weather, hit a five-month high this week as gas futures followed a sharp increase in the oil market. Oil prices retreated about 2% on Wednesday, extending the previous day's declines after Saudi Arabia said it would quickly restore full production following last weekend's attacks on its facilities and as US crude stockpiles rose unexpectedly.
"The sell-off in the oil complex and the market is beginning to realize the weather would moderate next week and enter the shoulder period. Without the temperature factor there is not much to support the prices at this point of time," said Jim Ritterbusch, president of Ritterbusch and Associates. After weeks of gains, the gas front-month was up more than 30% over a three-year low of $2.029 per mmBtu hit on Aug. 5, keeping it in overbought territory for a 12th consecutive day for the first time since June 2016.
That cut the premium of futures for November over October to below 3 cents per mmBtu, its lowest since the contracts started trading in 2008, according to NYMEX data from data provider Refinitiv. With warm weather expected to linger over parts of the country, Refinitiv boosted its projection for average demand next week in the lower 48 US states from 82.4 billion cubic feet per day (bcfd) to 82.6 bcfd as power generators burn more fuel to keep air conditioners humming.
Even though temperatures were expected to remain at above normal levels through the end of September, next week's demand forecast was down from Refinitiv's 85.2 bcfd projection for this week because the weather will still be cooler next week with the coming of autumn. Tropical Storm Imelda hit the Houston area on Tuesday and weakened into a tropical depression as it moved inland. The storm caused minimal power outages but was expected to drop heavy amounts of rain over southeast Texas over the next day or two.
US gas exports, meanwhile, were expected to rise slowly over the next two weeks. Gas flows to US liquefied natural gas (LNG) export plants eased to 6.5 bcfd on Tuesday due to a small decline at Cheniere Energy Inc's Sabine Pass terminal in Louisiana, down from a two-week high of 6.7 bcfd on Monday. That compares with an average of 6.1 bcfd last week, according to Refinitiv data. In two weeks, Refinitiv projected, flows to US LNG terminals could rise to a fresh record high over 6.7 bcfd.
Exports to Mexico, meanwhile, held around 5.1 bcfd over the past two weeks as the market continued to wait for more gas to flow through the 2.6-bcfd Valley Crossing and Sur de Texas-Tuxpan pipes after TC Energy Corp and Sempra's IENOVA unit resolved pipeline contract disputes with Mexico's Federal Electricity Commision in late August.
Refinitiv said flows through the Brownsville point in Texas, which the market uses to watch gas moving through the Valley Crossing pipe, jumped to 0.5 bcfd on Tuesday from zero on Monday. Gas production in the lower 48 states slipped to 91.2 bcfd on Tuesday due to small declines in various regions, down from 92.6 on Monday, according to Refinitiv data. That compares with an all-time daily high of 93.0 bcfd on August 19.