Natural gas drops 10%, on track for worst month in more than three years

U.S. natural gas futures plunged below $6 per million British thermal units on Thursday, after an inventory report showed a larger-than-expected storage build, sparking fears of an oversupplied market.

Henry Hub futures declined 12.5% to $5.68 per million British thermal units. The contract is now down roughly 30% for June, on track for the worst month since December 2018.

The U.S. Energy Information Administration said Thursday that inventory for the week ending June 24 rose by 82 billion cubic feet.

David Givens, head of natural gas and power services for North America at Argus Media, said he was forecasting a build of 76 billion cubic feet.

“The 82 number was bearish in that regard,” he said, adding that storage accumulation is closing in on normal levels.

Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, pointed to the “sensitivity of the supply demand balance that natural gas is under for the summer cooling demand season.”

“Gas has been a hugely important commodity export, and power burns have been robust for H1 2022. When the commodity is at such high price levels due to perceived scarcity, any fundamental indicator will cause the commodity to swing violently either up or down,” he said.

Part of this month’s weakness is also due to Freeport LNG announcing earlier in June that its Quintana Island, Texas, facility would be offline for longer than expected following a fire.

The announcement caused natural gas futures to plummet more than 16% on the day as traders feared an oversupplied market.

Freeport’s operation accounts for roughly 17% of the U.S.’ LNG processing capacity. A record amount of U.S. LNG has gone to Europe in recent months as the bloc looks to move away from Russian energy. Demand for LNG in turn boosted Henry Hub prices.

The Pipeline and Hazardous Materials Safety Administration said Thursday that the facility will not be allowed to return to normal operations until PHMSA deems it safe.

“As a result of the preliminary investigation, it appears conditions exist at Freeport’s LNG export facility that pose an integrity risk to public safety, property, or the environment,” the agency said in a statement.

Despite June’s heavy declines, natural gas is still up more than 50% for 2022.

John Kilduff, partner at Again Capital, noted that while storage levels are still more than 10% below last year’s levels, “we are in the zone of being manageable now.” He added that the weather outlook for the Northeast is pointing to mild conditions into mid-July.

Natural gas prices surged above $9 per MMBtu in May, hitting the highest level since August 2008.