US natural gas steady near 7-year high on forecasts for continued hot weather

US natural gas futures held near a seven-year high on Friday on forecasts for hotter-than-normal weather through late September, lower-than-normal storage levels going into the winter heating season when gas demand peaks and record gas prices around the world that have kept US exports high.

Traders also noted that US production remains slow to recover after Hurricane Ida battered the Gulf Coast. US gas futures have surged more than 25% since late August when Ida entered the Gulf of Mexico.

Front-month gas futures for October delivery were up 1.7 cents, or 0.3%, to $5.048 per million British thermal units (mmBtu) at 8:36 a.m. EDT, putting the contract on track for its highest close since February 2014 for a third day in a row.

For the week, the front-month was up about 7%, putting it on track to rise for a third week in a row for the first time since June.

Strong gains in the October contract over the past few weeks have cut the November futures premium over October to its lowest since April 2020.

US natural gas on track for fresh 7-year high despite big storage build

In addition, the premium of March 2022 futures over April 2022 rose to a record high this week. The market uses the March-April and October-November spreads to bet on the winter heating season when demand for gas peaks.

The gas industry calls the March-April spread the "widow maker" because rapid price moves resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006.

Data provider Refinitiv said gas output in the US Lower 48 states have fallen to an average of 89.7 billion cubic feet per day (bcfd) so far in September from 92.0 bcfd in August due mostly to Ida-related losses along the Gulf Coast. That compares with a monthly record of 95.4 bcfd in November 2019.

Refinitiv projected average US gas demand, including exports, would rise from 87.3 bcfd this week to 87.7 bcfd next week before easing to 87.1 bcfd in two weeks when the weather starts to cool.

The amount of gas flowing to US liquefied natural gas (LNG) export plants has risen to an average of 10.8 bcfd so far in September from 10.5 bcfd in August as buyers around the world keep buying all the super-chilled gas the United States can produce. That compares with a monthly record of 11.5 bcfd in April.

Gas in Europe and Asia was trading around $20 and $19 per mmBtu, respectively, compared with just $5 for the US fuel. Gas prices at the Title Transfer Facility (TTF) in the Netherlands, the European benchmark, were at a record high.