U.S. natgas falls 4% to 3-mth low on mild weather, global price collapse

October 18, 20227:19 PM UTCUpdated ago

Natural gas flares off at a production facility owned by Exxon near Carlsbad, New Mexico, United States — Natural gas flares off at a production facility owned by Exxon near Carlsbad, New Mexico, U.S. February 11, 2019. REUTERS/Nick Oxford

Oct 18 (Reuters) - U.S. natural gas futures fell about 4% on Tuesday to a three-month low as oil and European gas prices dropped and forecasters called for milder U.S. weather over the next two weeks.

U.S. gas prices have been declining for eight weeks as record domestic output and reduced liquefied natural gas (LNG) exports have allowed utilities to inject much more gas than usual into storage.

"Even the most stubborn market bulls have recently started to acknowledge the bearish fundamentals and are more readily concurring that the fall and early winter temperature forecasts are uninspiring at best," analysts at energy consulting firm Gelber & Associates said in a report.

Major LNG outages include Berkshire Hathaway Energy's shutdown of its 0.8 billion-cubic-feet-per-day (bcfd) Cove Point LNG export plant in Maryland for about three weeks of planned maintenance on Oct. 1 and the continuing shutdown of Freeport LNG's 2.0-bcfd plant in Texas for unplanned work after an explosion on June 8. Freeport expects the facility to return to at least partial service in early to mid-November.

At least three vessels were heading to Freeport, according to Refinitiv data, including Prism Brilliance (expected to arrive Oct. 18), Prism Diversity (Oct. 27) and Seapeak Methane (Nov. 22). Some traders now believe Freeport will return in November while others believe the return will be delayed. Officials at Freeport said they remain on track to return the plant in November.

Front-month gas futures fell 25.4 cents, or 4.2%, to settle at $5.745 per million British thermal units (mmBtu), their lowest close since July 6 for a second day in a row.

That kept the front-month in technically oversold territory with a relative strength index (RSI) below 30 for a second day in a row.

Oil prices , fell about 3% on rising U.S. supplies, fears of economic slowdown and lower Chinese fuel demand, among other things.

Despite recent declines, U.S. gas futures remained up about 54% this year as soaring global gas prices feed demand for U.S. exports due to supply disruptions and sanctions linked to Russia's Feb. 24 invasion of Ukraine.

Gas was trading at $32 per mmBtu in Europe and $31 in Asia .

European forwards were down about 30% over the past week, on track for their lowest close since June 14 as strong LNG imports boosted the amount of gas in storage in Northwest Europe to healthy levels above 90% of capacity. European prices hit an all-time high of $90.91 on Aug. 25.

During the first nine months of 2022, roughly 60%, or 6.3 bcfd, of U.S. LNG exports went to Europe, as shippers diverted cargoes from Asia to fetch higher prices. Last year, just 29%, or about 2.8 bcfd, of U.S. LNG exports went to Europe.

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Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 99.6 bcfd so far in October, up from a monthly record of 99.4 bcfd in September.

With milder weather coming, Refinitiv projected average U.S. gas demand, including exports, would fall from 101.0 bcfd this week to 95.9 bcfd next week. Those forecasts were higher than Refinitiv's outlook on Monday.

The average amount of gas flowing to U.S. LNG export plants has fallen to 11.0 bcfd so far in October from 11.5 bcfd in September and well below the monthly record of 12.9 bcfd in March. The seven big U.S. export plants can turn about 13.8 bcfd of gas into LNG.

U.S. LNG exports, however, could start to rise this week if Cove Point returns to service as some traders expect.