U.S. natural gas prices fall to 3-year low on rising output, ample storage

(Reuters) - U.S. natural gas futures fell about 2% on Wednesday to a three-year low after breaking through the key $2 per MMBtu level of technical support with ample amounts of fuel in storage, rising output and less gas flowing to LNG export plants.

"The $2.00 level, generally a source of significant support ... has now broken, which from a technicals perspective is suggestive of further downside," analysts at energy consulting firm Gelber and Associates told customers in a note. "We view the next significant area of support as $1.80."

Traders said record output and mild weather for much of the winter allowed utilities to pull less fuel out of storage, leaving stockpiles about 10% above normal levels for this time of year.

Output was rising as gas wells keep returning to service after freezing during an Arctic blast in mid-January, while LNG feedgas remained low due to an ongoing outage at Freeport LNG's export plant in Texas.

Front-month gas futures <NGc1> for March delivery on the New York Mercantile Exchange (NYMEX) fell 4.2 cents, or 2.1%, to settle at $1.967 per million British thermal units (mmBtu), their lowest close since September 2020.

That also kept the contract in technically oversold territory for a second day in a row.

Rising price volatility in recent weeks has increased interest in gas trading with open interest in NYMEX futures rising to 1.510 million contracts on Feb. 5, the most since February 2020, for a fifth day in a row.

SUPPLY AND DEMAND

Financial company LSEG said gas output in the U.S. Lower 48 states rose to an average of 105.5 billion cubic feet per day (bcfd) so far in February from 102.1 bcfd in January. That, however, was still below the monthly record high of 106.3 bcfd in December.

Meteorologists projected temperatures in the Lower 48 states would remain warmer than normal through Feb. 12 before sliding to mostly near- to below-normal levels from Feb. 13-22.

With seasonally colder weather coming, LSEG forecast U.S. gas demand in the Lower 48, including exports, would rise from 122.6 bcfd this week to 125.1 bcfd next week. Those forecasts were higher than LSEG's outlook on Tuesday.

Gas flows to the seven big U.S. LNG export plants slid to an average of 13.5 bcfd so far in February, down from 13.9 bcfd in January and a monthly record high of 14.7 bcfd in December.

Analysts said U.S. LNG feedgas would likely not return to record levels until Freeport LNG was back at full power, which could occur in mid- to late-February.

The U.S. became the world's biggest LNG supplier in 2023, ahead of recent leaders Australia and Qatar, as much higher global prices fed demand for more exports due in part to supply disruptions and sanctions linked to Russia's war in Ukraine.

Gas was trading around $9 per mmBtu at both the Dutch Title Transfer Facility (TTF) benchmark in Europe and the Japan Korea Marker (JKM) benchmark in Asia.

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