U.S. natural gas futures jumped about 14% on July 7 to their highest in a week, supported by a much smaller-than-expected storage build last week as power generators burned lots of gas to keep air conditioners humming during an extreme heat wave.
Even before the government released the storage report, prices were already up about 5% because last week's heat wave was still scorching much of the country. Power demand in Texas has kept breaking all-time highs, and gas output has dropped in recent days.
The U.S. Energy Information Administration (EIA) said U.S. utilities added 60 Bcf of gas to storage during the week ended July 1, much lower than the 74 Bcf analysts forecast in a Reuters poll. It compared with an increase of 25 Bcf in the same week last year and a five-year (2017-2021) average increase of 60 Bcf.
The storage build was expected to be bigger due partly to the outage at the Freeport LNG export plant in Texas, the second-biggest U.S. LNG export plant. It was consuming about 2 Bcf/d of gas before it shut on June 8.
“Today’s strong [price] advance ... not only reflected some bullish spillover from the oil [market] but also a much smaller storage injection per the EIA than had generally been expected,” said analysts at Ritterbusch and Associates, a consultancy.
Ritterbusch noted the forecast miss in the storage build underscores the difficulty in factoring in the Freeport LNG outage.
Front-month gas futures rose 78.7 cents, or 14.3%, to settle at $6.297 per MMBtu, their highest close since June 29 and their biggest daily percentage gain since early February when prices jumped about 16%.
So far this year, the contract is up about 67% as much higher prices in Europe and Asia keep demand for U.S. LNG exports strong, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow would cut gas supplies to Europe.
Gas was trading around $53 per MMBtu in Europe and $40 in Asia.
Oil futures gained about 4% as tight supply concerns outweighed recession fears.
Since mid-June, Russia has exported around 3.7 Bcf/d of gas on the three main lines into Germany—Nord Stream 1 (Russia-Germany), Yamal (Russia-Belarus-Poland-Germany) and the Russia-Ukraine-Slovakia-Czech Republic-Germany route.
That is down from around 6.5 Bcf/d in early June and an average of 9.4 Bcf/d in July 2021.
U.S. futures lag far behind global prices because the United States is the world’s top producer, with all the gas it needs domestically, while capacity constraints limit LNG exports.
Data provider Refinitiv said average gas output in the U.S. Lower 48 has risen to 95.9 Bcf/d so far in July from 95.1 Bcf/d in June and not far below the monthly record of 96.1 Bcf/d in December 2021.
Over the past two days, however, output was on track to drop 2.4 Bcf/d to a preliminary three-week low of 94.2 Bcf/d on July 7. Preliminary data is often revised later in the day.
With hotter weather coming, Refinitiv projected average U.S. gas demand including exports would rise from 96.2 Bcf/d this week to 99 Bcf/d next week. The forecast for this week was higher than Refinitiv’s outlook on July 6.
The average amount of gas flowing to U.S. LNG export plants has held at 11.2 Bcf/d so far in July, the same as in June. That was down from 12.5 Bcf/d in May and a monthly record of 12.9 Bcf/d in March due to the Freeport outage.
The seven big U.S. export plants can turn about 13.6 Bcf/d of gas into LNG.
Having that extra gas in the United States during the Freeport outage has already caused U.S. prices to drop about 40% from nearly a 14-year high above $9 per MMBtu in early June, just before the LNG plant shut.
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