New York — US natural gas futures fell by about 2% on Monday, reaching a three-week low, as forecasts predicted reduced demand for the coming week.
Energy analysts attribute the price drop to an ongoing oversupply of gas in storage, which has kept prices low throughout the year. Current storage levels are about 12% higher than the seasonal average, despite smaller-than-usual weekly builds and a rare storage decline in August.
This decline in prices occurred even though forecasts suggest hotter-than-normal weather over the next two weeks, which is expected to increase gas consumption for cooling purposes.
At 8:55 a.m. EDT (1255 GMT), September futures on the New York Mercantile Exchange were down 4.1 cents, or 2.0%, to $1.981 per million British thermal units (mmBtu). This drop puts the contract on track to close at its lowest level since August 5 and marks the fifth consecutive day of decline, a streak not seen since late July.
The decline has also pushed the October futures premium over September to 17 cents per mmBtu, setting a record for the second consecutive day. Although the heating season is months away, the market appears to be dismissing the likelihood of significant price spikes due to extreme cold, with the premium of March futures over April falling to a record low of 12 cents per mmBtu.
In the spot market, pipeline constraints led to negative next-day gas prices at the Waha hub in West Texas for the 29th time this year, a record number.
Producers adjust output in response to price changes, but it typically takes a few months for these adjustments to be reflected in production data.
Average monthly spot prices at the Henry Hub benchmark in Louisiana reached a 12-month high of $3.18 per mmBtu in January but fell 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 response to these price drops, producers reduced average monthly output from 106.0 billion cubic feet per day (bcfd) in February to 102.7 bcfd in March, 101.5 bcfd in April, and a 17-month low of 101.3 bcfd in May.
Winter storms at the start of the year reduced output from a record 106.3 bcfd in December to 103.6 bcfd in January. As Henry Hub prices rose to $1.60 per mmBtu in April, $2.12 in May, and $2.54 in June, some producers, including EQT and Chesapeake Energy, increased drilling, boosting output to 101.0 bcfd in June and 103.4 bcfd in July.
However, with Henry Hub prices dropping back to $2.08 per mmBtu in July and $2.00 in August, analysts predict that output will likely decrease as producers cut back on drilling activities. According to financial firm LSEG, gas output in the Lower 48 states has decreased to an average of 102.4 bcfd in August, down from 103.4 bcfd in July.