U.S. natural gas futures rose on Monday as production slows despite forecasts for milder weather and less heating demand over the next two weeks than previously expected.
Source: Reuters
In addition to milder weather, analysts said steps to slow the spread of the coronavirus have reduced demand from commercial and industrial companies as offices close and factories run at lower capacities.
Front-month gas futures for May delivery on the New York Mercantile Exchange (NYMEX) rose 7 cents, or 4.0%, to $1.803 per million British thermal units at 9:01 a.m. EDT (1301 GMT).
Even before the coronavirus started to cut global economic growth and energy demand, gas was trading near its lowest in years as record production and months of mild winter weather enabled utilities to leave more fuel in storage, making shortages and price spikes unlikely. During the first week of April, the front-month settled at its lowest since August 1995.
The U.S. Energy Information Administration (EIA) projected the coronavirus would cut U.S. gas consumption to 83.79 billion cubic feet per day (bcfd) in 2020 and 81.24 bcfd in 2021 from a record 84.97 bcfd in 2019. That would be the first annual decline in consumption since 2017 and the first time demand falls for two consecutive years since 2006.
Looking ahead, however, gas futures for the balance of 2020 and calendar 2021 were trading much higher than the front month on expectations demand will jump in coming months as the economy recovers once governments loosen of travel and work restrictions after slowing the spread of coronavirus. Calendar 2021 has traded at a premium over 2022 for 25 days and over 2025 for 15 days.
With forward prices rising, speculators have cut their short positions on the NYMEX and Intercontinental Exchange and added to their longs. Last week, speculative holdings switched from net short to net long for the first time since May 2019.
Production in the U.S. Lower 48 states, meanwhile, eased from 93.4 bcfd on Sunday from 93.6 bcfd on Saturday, according to data provider Refinitiv. That compares with 93.2 bcfd last week and an all-time daily high of 96.5 bcfd on Nov. 30.
With warmer, spring-like weather coming, Refinitiv projected gas demand in the Lower 48 states, including exports, will slip from an average of 97.3 bcfd this week to 94.3 bcfd next week. That is lower than Refinitiv’s forecasts on Friday of 99.8 bcfd this week and 95.0 bcfd next week.
In the spot market, mild weather cut next-day power prices at the SP-15 hub in Southern California to a record low.
The amount of gas flowing to U.S. liquefied natural gas export plants (LNG) export plants, meanwhile, eased to 7.8 bcfd on Sunday from 8.1 bcfd on Saturday, according to Refinitiv. That compares with an average of 8.0 bcfd last week and an all-time daily high of 9.5 bcfd on Jan. 31.
