(Reuters) - U.S. natural gas futures dropped about 7% to a one-week low on Monday on record output and forecasts for mild weather to continue through late November, keeping heating demand low and allowing utilities to keep injecting gas into storage for at least a couple more weeks.
"Near-term weather forecasts have been revised notably warmer even as El Nino suggests warm winter temperatures along a longer horizon as well," analysts at energy consulting firm Gelber and Associates said in a note.
Gelber noted 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 the market volatility. EIA will resume its regular schedule on Nov. 13.
"The lack of available storage data this week has market participants paying special attention to weather forecasts in an effort to gain insight into how the withdrawal season will play out," analysts at Gelber said.
Front-month 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 (mmBtu), their lowest close since Oct. 27.
That was also the biggest one-day percentage decline since the contract lost about 7.2% on May 22.
One bearish factor that has weighed on the futures market for most of this year has been lower spot or next-day prices at the Henry Hub benchmark 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 the Henry Hub fell about 4% to $3.00 per mmBtu for Monday.
Analysts have said that so long as the futures market stays in contango - with second-month higher than front-month - and spot prices remain far enough below the front-month to cover margin and storage costs, traders should be able to lock in arbitrage profits by buying spot gas, storing it and selling a futures contract.
That front-month to second-month contango rose to a record high for a third day in a row with the premium of January futures over December reaching around 30 cents per mmBtu.
That premium could encourage some speculators to leave gas in storage for longer in hopes of higher prices later in the winter. Utilities, however, will start to pull gas from storage in mid to late November as daily heating demand for the fuel starts to exceed production.
SUPPLY AND DEMAND
LSEG said average gas output in the Lower 48 U.S. states rose to 107.3 billion cubic feet per day (bcfd) so far in November from a record 104.2 bcfd in October.
On a daily basis, output hit an all-time high of 108.0 bcfd on Saturday, topping the prior daily record of 107.7 bcfd just two days earlier on Nov. 2.
Meteorologists projected the weather would go from warmer than normal from Nov. 6 to 11 to near normal from Nov. 11 to 14 and then back to warmer than normal from Nov. 15 to 21.
With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48 states, including exports, would jump from 101.5 bcfd this week to 109.2 bcfd next week. The forecasts for next week was higher than LSEG's outlook on Friday.
Gas flows to the seven big U.S. liquefied natural gas (LNG) export plants rose to an average of 14.3 bcfd so far in November, up from 13.7 bcfd in October and a record 14.0 bcfd in April.
Week ended Week ended Year ago Five-year
Nov 3 Oct 27 Nov 3 average
Forecast Actual Nov 3
U.S. weekly natgas storage change (bcf): 21 79 83 36
U.S. total natgas in storage (bcf): 3,800 3,779 3,569 3,610
U.S. total storage versus 5-year average 5.3% 5.7%
Global Gas Benchmark Futures ($ per mmBtu) Current Day Prior Day This Month Prior Year Five Year
Last Year Average Average
2022 (2017-2021)
Henry Hub 3.37 3.52 6.43 6.54 2.89
Title Transfer Facility (TTF) 14.47 15.01 35.88 40.50 7.49
Japan Korea Marker (JKM) 17.57 17.65 28.37 34.11 8.95
LSEG Heating (HDD), Cooling (CDD) and Total (TDD) Degree Days
Two-Week Total Forecast Current Day Prior Day Prior Year 10-Year 30-Year
Norm Norm
U.S. GFS HDDs 211 202 302 259 263
U.S. GFS CDDs 16 19 17 15 13
U.S. GFS TDDs 227 221 319 274 27
LSEG U.S. Weekly GFS Supply and Demand Forecasts
Prior Week Current Next Week This Week Five-Year
Week Last Year Average For
Month
U.S. Supply (bcfd)
U.S. Lower 48 Dry Production 105.6 107.5 107.4 99.4 94.4
U.S. Imports from Canada 7.2 7.5 7.5 7.3 8.3
U.S. LNG Imports 0.0 0.0 0.0 0.0 0.1
Total U.S. Supply 113.2 115.0 114.9 106.7 102.8
U.S. Demand (bcfd)
U.S. Exports to Canada 2.0 2.2 2.3 2.3 2.9
U.S. Exports to Mexico 6.1 6.1 6.3 5.0 5.3
U.S. LNG Exports 14.2 14.0 13.8 11.6 7.9
U.S. Commercial 10.3 8.9 11.2 8.6 11.7
U.S. Residential 14.8 12.2 16.9 11.8 17.5
U.S. Power Plant 31.0 28.1 27.5 20.1 27.5
U.S. Industrial 23.9 22.6 23.4 22.7 24.3
U.S. Plant Fuel 5.2 5.3 5.3 5.2 5.2
U.S. Pipe Distribution 2.3 2.1 2.3 2.3 2.3
U.S. Vehicle Fuel 0.1 0.1 0.1 0.1 0.1
Total U.S. Consumption 87.6 79.3 86.7 70.8 88.6
Total U.S. Demand 109.8 101.5 109.2 89.7 104.7
U.S. Northwest River Forecast Center (NWRFC) at The Dalles Dam Current Day Prior Day 2023 2022 2021
% of Normal % of Normal % of Normal % of Normal % of Normal
Forecast Forecast Actual Actual Actual
Apr-Sep 92 91 83 107 81
Jan-Jul 89 89 77 102 79
Oct-Sep 89 89 76 103 81
U.S. weekly power generation percent by fuel - EIA
Week ended Week ended Week ended Week ended Week ended
Nov 10 Nov 3 Oct 27 Oct 20 Oct 13
Wind 11 14 10 10
Solar 4 4 4 4
Hydro 5 5 5 5
Other 1 2 2 2
Petroleum 0 0 0 0
Natural Gas 40 40 42 41
Coal 19 16 17 16
Nuclear 19 19 20 21
SNL U.S. Natural Gas Next-Day Prices ($ per mmBtu)
Hub Current Day Prior Day
Henry Hub 3.00 3.12
Transco Z6 New York 1.34 1.70
PG&E Citygate 5.08 5.62
Eastern Gas (old Dominion South) 1.40 1.56
Chicago Citygate 2.11 2.54
Algonquin Citygate 1.53 1.83
SoCal Citygate 6.05 7.40
Waha Hub 0.69 1.97
AECO 1.87 1.91
SNL U.S. Power Next-Day Prices ($ per megawatt-hour)
Hub Current Day Prior Day
New England 24.75 32.50
PJM West 34.75 40.75
Ercot North 32.00 23.75
Mid C 60.00 65.00
Palo Verde 49.50 56.50
SP-15 47.75 57.00