US natgas prices drop 8% on less cold forecasts, lower heating demand [UPDATE]
Nov 27 (Reuters) - U.S. natural gas futures fell about 8% in volatile trade on Wednesday 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 storage during mild weather and low heating demand last week.
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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 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 for a second day in a row.
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 (bcfd) so far in November from 101.1 bcfd in October. That compares with a record 105.3 bcfd 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 the 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 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, would jump from 114.5 bcfd this week to 131.0 bcfd 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 bcfd so far in November from 13.1 bcfd in October. That compares with a monthly record high of 14.7 bcfd 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-bcfd Freeport plant have averaged 1.7 bcfd 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.
(Reporting by Scott DiSavino; Editing by Mark Porter and Chris Reese)