US natural gas futures eased to a fresh three-year low on Monday with spot prices at their lowest in years, production rising close to record highs and forecasts for less demand this week than previously expected.
Analysts noted the front-month has traded around multiyear lows since late May despite power demand and liquefied natural gas (LNG) exports close to all-time highs, as near-record production allowed utilities to inject huge amounts of gas into stockpiles, shrinking a massive storage deficit and removing any concerns about shortages next winter.
The amount of gas in inventory has remained below the five-year average since September 2017.
It fell as low as 33pc below that average in March 2019. But with production near record highs, analysts expect stockpiles will reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on Oct. 31.
On its last day as the front month, gas futures for August delivery on the New York Mercantile Exchange were down 1.6 cents, or 0.7pc, at $2.153 per million British thermal units (mmBtu) at 9:29 a.m. EDT (1329 GMT). On Friday, the contract closed at its lowest level since May 27, 2016.
That kept the front-month in oversold territory with a relative strength index (RSI) below 30 for a second day in a row.
September futures, which will soon be the front-month, were trading around $2.13 per mmBtu.
The 12-month strip, meanwhile, fell to $2.35 per mmBtu, its lowest since March 2016.
All those bearish factors caused gas speculators to cut their net short positions on the NYMEX and Intercontinental Exchange in the week to July 23 to the lowest on record, according to US Commodity Futures Trading Commission (CFTC) data from Refinitiv going back to 2010.
On the NYMEX, speculators cut their long positions to the lowest since November 2011 while boosting their shorts close to the highest since December 2017.
Energy companies have been returning Gulf of Mexico wells and platforms to service since Tropical Storm Barry hit the central Louisiana coast on July 13.
Gas production in the offshore Gulf of Mexico rose to 3.0 billion cubic feet per day (bcfd) on Friday-Sunday, near where it was before the storm hit, according to Refinitiv. That compares with a low of 1.2 bcfd from July 13-15 after Barry hit.
With increases in the Gulf of Mexico, output in the Lower 48 US states rose to a three-week high of 90.4 bcfd on Sunday from a low of 88.9 bcfd last week, according to Refinitiv.
That compares with an all-time daily high of 91.1 bcfd on July 5 and an average of 83.1 bcfd during this week last year.
Refinitiv projected demand in the Lower 48 would rise from 89.8 bcfd this week to 91.3 bcfd next week as power generators burn a little more fuel to meet higher air conditioning use and more gas flows to the nation's LNG export terminals.
That keeps the power sector on track to burn more than 40 bcfd of gas on average this month, which would break its monthly record of 39.9 bcfd set in July 2018, according to federal energy projections.
The amount of gas flowing to LNG export terminals, meanwhile, held around 6.0 bcfd on Saturday and Sunday, up from a low of 5.7 bcfd last week, according to Refinitiv data. That compares with a record high of 6.4 bcfd on July 19.
Analysts said they expect LNG exports to hit fresh highs soon as new units enter service at Sempra Energy's Cameron in Louisiana, Freeport LNG's Freeport in Texas and Kinder Morgan Inc's Elba in Georgia.
In Asia, LNG futures at the Japan Korea Marker (JKM) fell to $4.38 per mmBtu, their lowest since April 2016.
Traders, however, noted that was still more than $2 over the Henry Hub benchmark in Louisiana, which should make it profitable to keep sending US cargoes to Asia.
Gas prices for Monday at the Henry Hub fell to $2.23 per mmBtu, their lowest since November 2016 as moderate weather across much of the country caused demand for the fuel for cooling to decline.