US natural gas prices fall over 2% on profit-taking, mild weather outlook

By Sherin Elizabeth Varghese

Oct 28 (Reuters) - U.S. natural gas futures fell more than 2% on Tuesday in volatile trade ahead of the expiration of the November contract, pressured by profit-taking and shifting weather forecasts that pointed to softer heating demand.

Front-month gas futures for November delivery NGc1 on the New York Mercantile Exchange fell 9.7 cents, or 2.8%, to settle at $3.345 per million British thermal units (mmBtu). The contract expires on Wednesday.

"With the options expiring, there's probably some battleground there that's causing some of that price volatility. ... We're just seeing some profit-taking ahead of the storage report," said Robert DiDona, president of Energy Ventures Analysis.

The U.S. Energy Information Administration is scheduled to release its weekly storage report on Thursday at 10:30 a.m. EDT (1430 GMT).

"This pullback is driven by short-term weather model changes, but with strong LNG demand and higher baseline consumption, there's still upside potential. We're bullish overall but need normal weather to support prices," DiDona said.

Hurricane Melissa was expected to bring catastrophe as it makes landfall in Jamaica with storm surges, flash floods and landslides in the worst storm to hit the Caribbean island this century, a U.N. weather official said on Tuesday.

The Category 5 storm, the strongest possible on the Saffir-Simpson scale, will bring wind gusts of over 300 km/h (186 mph) and widespread devastation to the island, where authorities have ordered mandatory evacuations.

Even though storms can boost U.S. gas prices by cutting output along the U.S. Gulf Coast, they are more likely to reduce prices by shutting LNG export plants and knocking out power to homes and businesses. About 40% of the power generated in the U.S. comes from gas-fired plants.

"Although injections will likely be declining seasonally for a couple of weeks into next month, latest weather forecasts are now favoring only a modest reduction in the current 164 bcf surplus that could provide a significant cushion against colder-than-normal temps until December when the temperature factor will take on a greater importance," analysts at energy advisory firm Ritterbusch and Associates said in a note.

Global liquefied natural gas (LNG) demand is set to rebound as new supply entering the market is expected to push prices down and spur interest from price-sensitive buyers, trading executives at the Asia Gas Markets Conference said on Tuesday. U.S. natural gas prices are down more than 5% so far this year after surging 44.5% in 2024.

SUPPLY AND DEMAND

Financial firm LSEG estimated 207 heating degree days (HDDs) over the next two weeks, compared with 214 estimated on Monday. HDDs, which measure the number of degrees a day's average temperature is below 65 degrees Fahrenheit (18 degrees Celsius), are used to estimate demand to heat homes and businesses.

LSEG said average gas output in the Lower 48 states fell to 107.0 billion cubic feet per day (bcfd) so far in October, down from 107.5 bcfd in September and a record monthly high of 108.0 bcfd in August.

On a daily basis, output has slipped to 106.7 bcfd from around 108.0 bcfd over the past five days, compared with the record high of 109.2 bcfd reached on July 28.

Record output earlier this year allowed energy companies to inject more gas into storage than usual. There is currently about 5% more gas in storage than normal for this time of year. EIA/GAS NGAS/POLL

LSEG projected average gas demand in the Lower 48 states, including exports, would rise from 108.6 bcfd this week to 109.3 bcfd next week, marginally lower than its outlook on Monday.

The average amount of gas flowing to the eight big U.S. LNG export plants has risen to 16.6 bcfd so far in October, up from 15.7 bcfd in September and a monthly record high of 16.0 bcfd in April.