Natural Gas Futures Hit Three-Month Low on Mild Weather, Near Record Production

U.S. natural gas futures were down sharply on Tuesday as support continues to deteriorate during an especially bearish shoulder season. Prices reached a three-month low during the session, dragged down by a steep break in crude oil futures, lower prices in Europe and weather forecasts calling for milder U.S. temperatures over the next two weeks.

On Tuesday, December natural gas futures settled at $6.237, down $0.242 or -3.74%. Additionally, the United States Natural Gas Fund ETF (UNG) finished at $20.04, down $0.80 or -3.84%.

This week’s price action this late in the shoulder season suggests that even the most persevering bullish traders are finally throwing in the towel. Forcing them to make the decision to liquidate their long positions is record domestic output and reduced liquefied natural gas (LNG) exports. Both factors have contributed to the current eight week decline by allowing utilities to inject much more gas than usual into storage.

Natural Gas Prices Fall in Sympathy with Lower Crude Oil Prices

A steep drop in global and domestic crude oil prices on Tuesday pushed natural gas buyers to the sidelines, contributing to the nearly 4% decline.

The crude oil sell-off was triggered by the news that the Biden administration plans to sell more oil from the U.S. Strategic Petroleum Reserve (SPR) in a bid to dampen fuel prices before next month’s congressional elections, according to three sources familiar with the matter. Worries about lower demand from China also weighed.

Lower Prices in Europe, Asia Set Bearish Tone

Throughout the spring and summer months, U.S. natural gas prices soared as European buyers gobbled up as much liquefied natural gas (LNG) as they could handle. That demand has dried up because Germany and other countries reached storage capacity.

European forward contracts are now down about 30% over the past week, on track for their lowest close since June 14 as strong LNG imports in the amount of gas in storage in Northwest Europe to healthy levels above 90% of capacity. European prices hit an all-time high of $90.91 on August 25.

Short-Term Outlook

Prices could remain under pressure over the short-term due to strong production levels and lower demand.

Looking at the supply side, data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 99.6 bcfd so far in October, up from a monthly record of 99.4 bcfd in September.

Meanwhile with milder weather coming, Refinitiv is projecting average U.S. gas demand, including exports, would fall from 101.0 bcfd this week to 95.9 bcfd next week. Those forecast were higher than Refinitiv’s outlook on Monday.