Natural gas futures hit three-year low amid big supply
Natural gas futures slid toward $2 per million British thermal units, a level that hasn’t been breached in three years, as fading summer heat and maintenance on the largest U.S. export terminal leave the market struggling to absorb a barrage of supply from shale basins.
Temperatures may be mostly normal in the continental United States through the middle of this month, according to Commodity Weather Group LLC. Planned work on Cheniere Energy Inc.’s Sabine Pass liquefied natural gas export terminal in Louisiana, meanwhile, is limiting a key outlet for gas producers. Flows to the facility dropped 36 percent from Friday.
Though U.S. gas exports have
climbed to a record and power plants are burning more of the fuel than ever, the demand boost has been no match for soaring output from shale basins. Underground gas storage is filling up at a faster pace as the weather cools, erasing concern that a supply crunch will emerge during the winter heating season. Hedge funds’ bearish bets on gas have climbed to the highest in three years.
”We haven’t had any kind of sustainable hot weather this summer to give the market some backbone,” said Thomas Saal, senior vice president of energy trading at FCStone Latin America in Miami. “You have these LNG facilities that can move the market around. The funds continue to aggressively sell the market, so until they hit something, we are going to keep falling.”
Gas was also pressured lower by a broader decline in energy and agricultural commodities as the U.S.-China trade war escalated, with Beijing responding to President Donald Trump’s tariff threat by letting the yuan tumble to the weakest level in more than a decade.
But the currency move is unlikely to have an immediate effect on the market for U.S. LNG. China imposed a 25 percent tariff on U.S. cargoes of the fuel this year and hasn’t imported an American shipment since February, according to vessel tracking data compiled by Bloomberg.
China has received 62 cargoes of U.S. LNG since 2016, putting it behind South Korea, Mexico and Japan. If a trade deal is reached, however, it could put the U.S. on track to become the top supplier to China by 2025, Morgan Stanley said in June.
“The yuan devaluation is a part of the escalation of the U.S.China trade war, and natural gas was supposed to be the big winner in that deal,” said John Kilduff, a partner at hedge fund Again Capital LLC in New York. “And that deal looks like it’s far off.”
Gas for September delivery fell 5.5 cents, or 2.6 percent, to $2.066 per million Btu at 1:13 p.m. on the New York Mercantile Exchange. Futures earlier dropped to $2.029, the lowest since May 26, 2016.
The premium for March gas over April reached 14.4 cents after trading as low as 14.3 cents Friday. Shares of gas drillers fell alongside the broader market, with Southwestern Energy Co. slipping as much as 6.8 percent and Range Resources Corp. down as much as 7.8 percent.