US natural gas futures fell on Tuesday on forecasts for milder weather that should cut into demand over the next two weeks.
That decline followed a 10% increase in the prior session to a near six-week high on worries gas production will decline as drillers shut oil wells in shale basins due to the collapse in US crude prices, which fell on Monday below zero for the first time ever. Those oil wells produce a lot of gas.
Front-month gas futures for May delivery on the New York Mercantile Exchange fell 10.3 cents, or 5.4%, to settle at $1.821 per million British thermal units, after surging more than 20% over the past three days.
US oil front-month futures, which expire on Tuesday, were up to a positive $10 a barrel. The second-month crude contract which will soon be the front-month, was down over 40% to around $11.
Before the coronavirus pandemic started to cut global economic growth and energy demand, gas was already trading near its lowest in years as record production and months of mild winter weather allowed utilities to leave more fuel in storage, making shortages and price spikes unlikely.
However, gas futures for the balance of 2020 and calendar 2021 were trading much higher than the front-month on expectations demand will jump as the economy snaps back once governments loosen travel and work restrictions.
Futures' premium for March over April 2021, which the market uses to bet on winter demand, rose to its highest since October 2017, while calendar 2021 traded over 2022 for 29 days and over 2025 for 19 days.
With milder weather coming, data provider Refinitiv projected gas demand in the US Lower 48 states, including exports, would fall from 93.0 billion cubic feet per day (bcfd) this week to 89.6 bcfd next week. That is lower than Refinitiv's forecasts on Monday of 94.3 bcfd this week and 90.5 bcfd next week.
Despite low gas prices in Europe and Asia, the amount of gas flowing to US LNG export terminals edged up to 8.1 bcfd on Monday from 7.9 bcfd on Sunday, according to Refinitiv.
Traders, however, noted US LNG exports will likely decline in coming months as global gas prices tumble. Gas futures for the third month (July) were trading higher in the United States than at the Title Transfer Facility (TTF) in the Netherlands. That means it would cost more to buy gas in the United States in July than it could be sold for in northwestern Europe - and that does not include shipping or liquefaction.
Most US LNG has already been sold forward years in advance to utilities consuming the fuel, so US cargoes will likely continue to go to Europe despite the low spot price.
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