NEW YORK: US natural gas futures jumped about 3% to a fresh 13-year high on Thursday on a smaller than expected weekly storage build and a reduction in output over the past several days.
The US Energy Information Administration (EIA) forecast utilities added 80 billion cubic feet (bcf) of gas to storage during the week ended May 20.
That was lower than the 89-bcf build analysts forecast in a Reuters poll and compares with an increase of 109 bcf in the same week last year and a five-year (2017-2021) average increase of 97 bcf.
Traders noted last week’s build was smaller than usual for this time of year because hotter than normal weather boosted the amount of gas power generators burned to produce electricity for air conditioning.
Generators also burned more gas last week because power from wind was low compared with recent weeks.
On their last day as the front-month, gas futures for June delivery rose 25.2 cents, or 2.8%, to $9.223 per million British thermal units (mmBtu) at 10:37 a.m. EDT (1437 GMT), putting the contract on track for its highest close since August 2008 for a third day in a row.
That price increase briefly caused futures for June to trade at a premium over July for the first time since the contracts started trading in 2009.
Futures for July, which will soon be the front-month, were up 2.9% to $9.25 per mmBtu.
The recent rise in gas prices also caused the oil-to-gas ratio, or level at which oil trades compared with gas, to drop to 12-to-1 on Thursday, the lowest since November 2020. So far in 2022, crude has traded about 18 times over gas. That compares with crude’s average premium over gas of 19 times in 2021 and a five-year average (2017-2021) of 20 times. On an energy equivalent basis, oil should trade only six times over gas.
US gas futures are up about 147% so far this year as much higher prices in Europe and Asia keep demand for US LNG exports strong, especially since Russia’s Feb. 24 invasion of Ukraine stoked fears Moscow might cut gas supplies to Europe.
Despite supply concerns in Europe, US futures have soared about 34% over the past month, while European prices fell about 12% as Russia keeps sending supplies via pipeline and LNG vessels continue to deliver cargoes.
Gas was trading around $27 per mmBtu in Europe and $22 in Asia. With European gas stockpiles filling fast, traders noted LNG tankers may soon turn toward Asia where demand is expected to rise quickly as China starts to ease coronavirus lockdowns. Gas stockpiles in Northwest Europe were only about 10%
below the five-year normal versus about 15% below in the United States.
US futures, however, continue to lag far behind global prices because the United States is the world’s top producer with all the gas it needs for domestic use, while capacity constraints inhibit additional LNG exports.
Data provider Refinitiv said average gas output in the U.S. Lower 48 states has climbed to 94.9 billion cubic feet per day (bcfd) so far in May from 94.5 bcfd in April, off the monthly record of 96.1 bcfd in November 2021.
On a daily basis, however, output dropped about 2.0 bcfd over the past five days to near a one-month low of 93.7 bcfd due mostly to declines in Texas. The average amount of gas flowing to US LNG export plants has risen to 12.5 bcfd so far in May from 12.2 bcfd in April. It hit a monthly record of 12.9 bcfd in March. The United States can turn about 13.2 bcfd of gas into LNG.