Natural Gas

U.S. natural gas plunges extending losses

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US natural gas futures were off sharply on Tuesday (Nov. 30), extended losses below $4.7 per million British thermal units  (MMBtu), a level not seen in nearly three-months, as analysts pointed to weaker demand prospects and warming forecasts.

The fortnight ahead is expected to see warmer-than-usual weather and data provider Refinitiv projected 321 heating degree days (HDD), below the 30-year normal of 366 HDDs, meaning demand for heating is forecasted to be lower than the long-run normal.

“Particularly mild weather from Wednesday to Friday will decimate physical market demand and intensify downward pressure on Henry Hub spot prices,” EBW Analytics Group said in a note to clients.

Traders booking last week’s profits -natural gas futures spiked 7% on Friday-also pressured the January NYMEX contract on Monday and Tuesday. Contracts for January delivery fell 62.3 cents to settle at $4.854 per million British thermal units in New York on Monday (Nov. 29).

On a monthly basis, natural gas futures are on track to erase more than 10%. The recent declines follow a period of enormous strength. The contract posted a monthly gain from April through September, with prices surging 34% in September alone, according to CNBC.

The strength continued into early October when U.S. futures jumped to a 12-year high, as soaring global prices kept demand for U.S. Liquefied Natural Gas (LNG) exports strong.

Analysts have said stockpiles in some European countries were around 20% below normal for this time of year while in Asia energy shortfalls have caused power blackouts in China.

Natural Gas
(EIA Short-Term Energy Outlook Nov. 2021)

But no matter how high global prices rise, the belief that the United States will have enough gas in storage for this winter and a lack of capacity to export more LNG has kept U.S. prices from rocketing to the record levels seen in Europe and Asia.

Overseas prices continue to trade about six times higher than U.S. futures.

Gas prices were around $29 per mmBtu in Europe and $34 in Asia last week, compared with about $5 in the United States. Traders said buyers around the world will keep purchasing all the LNG the United States can produce.

U.S. gas stockpiles are only 1.6% below normal for the time of year, according to Bloomberg.

“Because of uncertainty around seasonal demand, we expect natural gas prices to remain volatile over the coming months with winter temperatures to be a key driver of demand and prices,” the US Energy Information Administration (EIA) said earlier this month.

Gas prices will generally decline through 2022, amid rising US gas production and slowing growth in LNG exports, EIA added. The agency  projected Henry Hub gas prices would average $3.93/MMBtu in 2022. The next EIA forecast release is scheduled for Dec. 7, 2021.