US natural gas prices fall 7% due to record production and mild weather

Nov 6 (Reuters) – U.S. natural gas futures fell about seven percent to a one-week low on Monday on record production and expectations for continued mild weather into late November, keeping heating demand low and allowing utilities to keep pumping gas into storage for a year. . At least a few more weeks.

“Near-term weather forecasts have been revised to become noticeably warmer even as El Nino points to warmer winter temperatures over a longer term as well,” analysts at energy consulting firm Gilbert & Associates said in a note.

Gelber noted that the lack of a storage report this week from the U.S. Energy Information Administration (EIA) due to a planned systems upgrade has added to market volatility. EIA will resume its regular schedule on November 13.

“The lack of storage data available this week has market participants paying close attention to the weather forecast in an attempt to gain insight into how the withdrawal season will play out,” analysts at Gelber said.

Gas futures for December delivery on the New York Mercantile Exchange fell 25.1 cents, or 7.1%, to settle at $3.264 per million British thermal units, their lowest close since October 27.

This was also the largest single-day percentage decline since the contract lost about 7.2% on May 22.

One bearish factor affecting the futures market for most of this year was a decline in spot or next-day prices at the Henry Hub in Louisiana. The spot market has traded below front-month futures for 176 out of 212 trading days so far this year, according to data from financial firm LSEG.

Next-day prices at Henry Hub fell about 4% to $3.00 per million British thermal units on Monday.

As long as the futures market remains in a state of contango — with the second month higher than the first month — and spot prices remain well enough below the nearest month to cover margin and storage costs, analysts said, traders should be able to secure arbitrage. Profits by buying spot gas, storing it and selling futures contracts.

Month 1 to Month 2 futures prices rose to a record high for the third day in a row, with the premium for January futures over December reaching about 30 cents per million British thermal units.

This premium may encourage some speculators to leave gas in storage longer in the hope of higher prices later in the winter. However, utilities will begin pulling gas from storage in mid- to late November as daily heating demand for the fuel begins to outpace production.

Supply and demand

Average gas production in the lower 48 U.S. states has risen to 107.3 billion cubic feet per day so far in November from a record high of 104.2 billion cubic feet per day in October, LSEG said.

On a daily basis, production hit an all-time high of 108 billion cubic feet per day on Saturday, surpassing the previous daily record of 107.7 billion cubic feet per day just two days ago on November 2.

Meteorologists expected the weather to shift from warmer than normal in the period from November 6 to 11 to almost normal in the period from November 11 to 14 and then return to warmer than normal in the period from November 15 to 21.

With the arrival of seasonally cooler weather, LSEG expects U.S. gas demand in the lower 48 states, including exports, to jump from 101.5 billion cubic feet per day this week to 109.2 billion cubic feet per day next week. Expectations for next week were higher than LSEG’s forecast on Friday.

Gas flows to the seven largest US LNG export plants have risen to an average of 14.3 billion cubic feet per day so far in November, up from 13.7 billion cubic feet per day in October and a record high of 14 billion cubic feet per day in April.

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