US natgas prices edge higher as traders eye warm weather forecast despite ample supply

By Noel John and Scott DiSavino

July 15 (Reuters) - U.S. natural gas futures rebounded to a near two-week high on Tuesday, as forecasts for a stretch of hotter weather stirred demand hopes, even as record production and lackluster summer consumption kept traders on edge.

Front-month gas futures for August delivery NGc1 on the New York Mercantile Exchange settled up 5.7 cents, or 1.6%, at $3.52 per million British thermal units. The contract was down as much as 2% earlier in the session.

"Futures gas prices have been flat with some volatilities in the last several weeks, suggesting that the market is not sure about the future direction," said Zhen Zhu, managing consultant at C.H. Guernsey and Company in Oklahoma City.

"However, we do see some hotter but seasonal weather down the road for the next couple of weeks. This could be the reason for the uptick in the prices."

Even though the weather has remained above normal so far this summer, analysts expect energy firms to keep injecting more gas into storage than usual in coming weeks. That is because output hit a record high in June and was on track to top that in July, while gas flows to LNG export plants have so far languished since hitting a record in April.

About 6% more gas is in storage than the normal five-year (2020-2024) level for this time of year, and analysts expect that surplus to grow in coming weeks. Some, however, noted that an expected rise in LNG exports should start to chip away at that surplus later this year. EIA/GASNGAS/POLL

"Waters in the Gulf are heating up and there would be some storms that will make the price dynamics more interesting," Zhu said.

The U.S. National Hurricane Center said a tropical system off the east coast of Florida has about a 40% chance of strengthening into a tropical cyclone over the next week as it moves west into the Gulf of Mexico off Louisiana, Mississippi, Alabama and Florida.

Analysts have noted that tropical storms in the Gulf can knock some production out of service, but noted that only about 2% of all U.S. gas output comes from the federal offshore Gulf of Mexico.

The analysts said storms were more likely to be demand-destroying events that can reduce the amount of gas power generators burn by leaving millions of homes and businesses without electricity and cutting gas exports by shutting Gulf Coast LNG export plants.

Meteorologists forecast the weather would mostly remain hotter than normal through at least July 30, but not as hot as previously expected.

SUPPLY AND DEMAND

LSEG said average gas output in the Lower 48 rose to 106.9 billion cubic feet per day so far in July, up from a monthly record high of 106.4 bcfd in June.

LSEG forecast average gas demand in the Lower 48, including exports, would slide from 107.8 bcfd this week to 106.8 bcfd next week. Those forecasts were below LSEG's outlook on Friday.

The average amount of gas flowing to the eight big U.S. LNG export plants rose to 15.8 bcfd so far in July as liquefaction units at some plants slowly exited maintenance reductions and unexpected outages. That was up from 14.3 bcfd in June and 15.0 bcfd in May, but remained below the monthly record high of 16.0 bcfd in April.

The U.S. became the world's biggest LNG supplier in 2023, surpassing Australia and Qatar, as surging global prices fed demand for more exports, due in part to supply disruptions and sanctions linked to Russia's 2022 invasion of Ukraine.

Gas was trading around $12 per mmBtu at the Dutch Title Transfer Facility TRNLTTFMc1 benchmark in Europe and $13 at the Japan Korea Marker JKMc1 benchmark in Asia. NG/EU