U.S. natural gas futures eased to a two-week low on Monday amid record output, negative spot prices at the Waha Hub and forecasts for mild weather. Natural gas at the Waha hub–a regional pricing hub for gas in the Permian Basin in West Texas–sold for near-zero or sub-zero prices for much of 2024, a trend that has continued in the current year. Indeed, prices at the hub spent 164 days in negative territory and hit an all-time low -$7/mmbtu at the end of August, truly historical lows. The Permian Shale boom led to a surge in associated gas production, with output growing more quickly than takeaway capacity. Consequently, Permian gas infrastructure has become saturated in recent years, effectively meaning that producers sometimes have to pay for someone to take their gas so that they can continue to produce something more valuable: crude oil.

Gas inventories, however, remained about 12% below normal levels for this time of year after extreme cold in January and February. U.S. natural gas futures dropped 1.3% to $4.058 per million British thermal units (mmBtu) at 11.15 am ET, putting the contract on track for its lowest close since February 28.

The price decline came despite robust LNG gas flows. Gas flows to U.S. LNG export plants clocked in at 15.6 bcfd, matching last month’s record. The latest EIA report revealed that U.S. utilities withdrew 62 bcf of gas for the week ending March 7, exceeding forecasts of 50-55 bcf. This further depressed storage, with inventory levels 27% lower than a year ago and 11.9% below the five-year average. Near-record output has, however, continued to cap gains, with output in the Lower 48 states hitting 105.7 bcfd in March, surpassing February’s record of 105.1 bcfd.

Similarly, European natural gas futures dipped to €41.7/MWh, easing after last week’s 9% rally, as traders weighed ceasefire negotiations between Ukraine and Russia. However, hopes for a swift resolution to the Ukraine war and potential restoration of Russian gas flows remain dim.

By Alex Kimani for Oilprice.com

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