U.S. Natural Gas Prices Plunge 8% as Mild Weather Weakens Heating Demand
(Reuters) — U.S. natural gas futures fell about 8% in volatile trade on Nov. 27 ahead of the U.S. Thanksgiving Day holiday on rising output and forecasts for less cold weather and lower heating demand over the next two weeks than previously expected.
That price drop occurred despite a report from the U.S. Energy Information Administration (EIA) showing utilities pulled an expected 2 billion cubic feet (Bcf) of gas from storage during mild weather and low heating demand last week.
That was not far off the 1-bcf build analysts forecast in a Reuters poll and compares with a build of 5 Bcf during the same week last year and a five-year average draw of 30 Bcf for this time of year.
On its first day as the front-month, gas futures for January delivery on the New York Mercantile Exchange fell 26.3 cents, or 7.6%, to settle at $3.204 per million British thermal units.
On Tuesday, when December futures were still the front-month, the contract closed at its highest level since November 2023.
Wednesday's price drop pushed the front-month out of technically overbought territory, while extreme price swings in recent weeks boosted the contract's 30-day implied volatility to 76.4%, its highest since January.
The market uses implied volatility to estimate likely price changes in the future when valuing options contracts. At-the-money 30-day implied volatility has averaged 59.8% so far in 2024, down from 70.3% in 2023 and a five-year (2019-2023) average of 60.1%.
In the spot market, meanwhile, the coming of wintry weather across parts of the United States caused gas prices to rise to their highest since January in several regions, including the Henry Hub benchmark in Louisiana, New York, Chicago and the Eastern Gas South hub in Pennsylvania.
Supply and Demand
Financial firm LSEG said average gas output in the Lower 48 U.S. states rose to 101.4 billion cubic feet per day (Bcf/d) so far in November from 101.1 Bcf/d in October. That compares with a record 105.3 Bcf/d in December 2023.
Analysts expect producers to boost gas output in 2025 as rising demand from liquefied natural gas (LNG) export plants increases prices after drillers reduced production in 2024 for the first time since the COVID-19 pandemic cut usage of the fuel.
Annual average gas prices at Henry Hub will soar by over 40% in 2025 after dropping to a four-year low in 2024, according to analysts’ forecasts.
Meteorologists projected that the weather in the Lower 48 will turn from mostly colder than normal now through Dec. 3 to mostly near-normal levels from Dec. 4-12.
With seasonally colder weather coming, LSEG forecast average gas demand in the Lower 48, including exports, will jump from 114.5 Bcf/d this week to 131.0 Bcf/d next week. The forecast for next week was lower than LSEG's outlook on Tuesday.
The amount of gas flowing to the seven big operating U.S. LNG export plants rose to an average of 13.5 Bcf/d so far in November from 13.1 Bcf/d in October. That compares with a monthly record high of 14.7 Bcf/d in December 2023.
Analysts, however, have noted LNG feedgas flows would be even higher but for issues at Freeport LNG in Texas.
Gas flows to the 2.1-Bcf/d Freeport plant have averaged 1.7 Bcf/d over the past two weeks due in part to various problems that caused two of the plant's three liquefaction trains to shut unexpectedly. Train 2 tripped off line on Nov. 15 and again on Nov. 22, while Train 3 shut on Nov. 20.
Related News
Related News
- Trump Aims to Revive 1,200-Mile Keystone XL Pipeline Despite Major Challenges
- Valero Considers All Options, Including Sale, for California Refineries Amid Regulatory Pressure
- ConocoPhillips Eyes Sale of $1 Billion Permian Assets Amid Marathon Acquisition
- ONEOK Agrees to Sell Interstate Gas Pipelines to DT Midstream for $1.2 Billion
- Energy Transfer Reaches FID on $2.7 Billion, 2.2 Bcf/d Permian Pipeline
- U.S. LNG Export Growth Faces Uncertainty as Trump’s Tariff Proposal Looms, Analysts Say
- Tullow Oil on Track to Deliver $600 Million Free Cash Flow Over Next 2 Years
- Energy Transfer Reaches FID on $2.7 Billion, 2.2 Bcf/d Permian Pipeline
- GOP Lawmakers Slam New York for Blocking $500 Million Pipeline Project
- Texas Oil Company Challenges $250 Million Insurance Collateral Demand for Pipeline, Offshore Operations
Comments