HomeNewsU.S. natgas prices drop 6% to 2-week low on big storage build, less heat

U.S. natgas prices drop 6% to 2-week low on big storage build, less heat

8/22/2024

U.S. natural gas futures dropped by about 6% to a two-week low on Thursday on a bigger-than-expected weekly storage build and forecasts for less hot weather over the next two weeks than previously expected.

That less hot weather should reduce the amount of gas electric power generators burn to keep air conditioners humming.

The U.S. Energy Information Administration (EIA) said utilities added 35 Bft3 of gas into storage during the week ended Aug. 16.

That was more than the 29-Bft3 build analysts forecast in a Reuters poll and compares with an increase of 23 Bft3 in the same week last year and a five-year (2019–2023) average rise of 41 Bft3 for this time of year.

Even though the storage build was less than expected, it was still smaller than normal for a 13th time in the past 14 weeks, including the rare summer withdrawal during the week ended Aug. 9. That withdrawal was the first weekly decline in August since 2006.

With the latest build, gas stocks were still about 13% above normal for this time of year.

Front-month gas futures for September delivery on the New York Mercantile Exchange fell 11.9 cents, or 5.5%, to $2.058 per MMBtu, putting the contract on track for its lowest close since Aug. 6.

In the spot market, pipeline constraints caused next-day gas prices at the Waha hub in the Permian Shale in West Texas to average in negative territory again for a record 28th time this year. Waha prices first averaged below zero in 2019. It happened 17 times in 2019, six in 2020 and once in 2023.

Supply and demand. Producers increase and decrease output in reaction to prices, but it usually takes a few months for changes in drilling activity to show up in the production data.

Average monthly spot prices at the U.S. Henry Hub benchmark in Louisiana hit a 12-month high of $3.18 per MMBtu in January before dropping to a 44-month low of $1.72 in February and a 32-year low of $1.49 in March, according to Reuters and federal energy data.

In reaction to that price plunge, producers cut average monthly output from 106.0 Bft3d in February to 102.7 Bft3d in March, 101.5 Bft3d in April and a 17-month low of 101.3 Bft3d in May, according to federal energy data.

Winter storms at the start of the year caused output to fall from a record 106.3 Bft3d in December to 103.6 Bft3d in January.

As monthly spot Henry Hub prices increased to $1.60 per MMBtu in April, $2.12 in May and $2.54 in June, some producers, including EQT and Chesapeake Energy, started to increase drilling activities, boosting output to 101.0 Bft3d in June and 103.4 Bft3d in July.

But with average spot Henry Hub prices back down to $2.08 per MMBtu in July and $2.02 so far in August, analysts said output would likely decline as some producers reduce drilling activities again.

Financial firm LSEG said gas output in the U.S. Lower 48 U.S. states has slid to an average of 102.3 Bft3d so far in August, down from 103.4 Bft3d in July.

LSEG forecast average gas demand in the Lower 48, including exports, will rise from 103.7 Bft3d this week to 103.9 Bft3d next week. Those forecasts were lower than LSEG's outlook on Wednesday.

Gas flows to the seven big U.S. LNG export plants rose to 12.9 Bft3d so far in August, up from 11.9 Bft3d in July. That compares with a monthly record high of 14.7 Bft3d in December 2023.

 

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