U.S. Natural Gas Futures Fall 6% to One-Week Low
On Wednesday, U.S. natural gas futures experienced a 6% decline, reaching a one-week low in a volatile contract expiration trade. This drop was primarily driven by an anticipated reduction in gas flows to liquefied natural gas (LNG) export plants.
Traders pointed to Freeport LNG in Texas potentially reducing output, coupled with forecasts indicating lower demand for the week than previously expected. The June delivery gas futures on the New York Mercantile Exchange (NYMEX) closed at $3.214 per million British thermal units (mmBtu), marking the lowest settlement since May 19.
Volatility and Low Volumes
The price of the June contract exhibited high volatility during its last day as the front-month, fluctuating by as much as 3% and dropping by as much as 7% within the session. The low trading volume on expiration day for the June contract was notable, with only about 2,400 front-month contracts traded on the NYMEX, significantly below the year-to-date daily average.
Looking ahead, futures for July, which are soon to become the front-month, were down approximately 4.6% to $3.57 per mmBtu.
Supply and Demand Dynamics
LSEG reported a decrease in average gas output in the Lower 48 U.S. states for May, falling to 105.0 billion cubic feet per day from a monthly record of 105.8 bcfd in April. This decline was attributed to routine spring maintenance on gas pipelines, including work on Kinder Morgan’s Permian Highway.
Furthermore, LSEG forecasted a slide in average gas demand in the Lower 48, including exports, from 96.1 bcfd this week to 95.7 bcfd next week. The average flow of gas to the eight major LNG export plants in the U.S. also decreased to 15.1 bcfd in May from a monthly record of 16.0 bcfd in April.
Outlook for LNG Feedgas and Future Trends
Energy traders anticipate that LNG feedgas will continue to remain below April’s record high in June, with maintenance planned at Cheniere’s Sabine Pass plant. This maintenance is expected to last about three weeks, impacting liquefaction trains and potentially influencing supply dynamics in the coming weeks.
Conclusion
In conclusion, the natural gas market experienced significant fluctuations and downward pressure, driven by factors such as reduced output at LNG export plants and lower demand forecasts. As the market adapts to these changes, traders will continue to monitor supply and demand dynamics closely to navigate the evolving landscape of the natural gas industry.