U.S. natural gas futures fell about 7% to their lowest in a year on Jan. 10 on rising output and forecasts for lower heating demand than previously expected for this week.

"U.S. natural gas demand could be on track to hit record lows in January if unseasonably warm weather sticks around," Emily McClain, vice president at consulting firm Rystad Energy, said in a note.

"Despite consistently robust LNG demand...particularly from European buyers, prices are falling and expected to continue bearish momentum until winter weather returns," McClain said, noting gas production has rebounded after a winter storm caused a sudden drop in late December.

Front-month gas futures for February delivery fell 27.1 cents, or 6.9%, to settle at $3.639/MMBtu, their lowest close since Dec. 30, 2021.

That continues last year's record volatility with the contract now up or down over 5% on four of the six trading days in 2023.

The price decline also pushed the front-month back into technically oversold territory, with a relative strength index (RSI) below 30 for the eighth time in nine days.

The premium on futures for March over April, which the industry calls the widow maker, slid to a fresh record low of 6 cents/MMBtu as some market participants give up hope that extreme cold will bring a price spike later this winter.

"The last contract on the winter strip [March] should never trade at a discount to the first month on the summer strip [April]...but that is what is threatening," said Bob Yawger, director of energy futures at Mizuho in New York.

The industry uses the March-April spread to bet on the winter heating season when demand for gas peaks. It calls the spread the "widow maker" because rapid price moves resulting from changing weather forecasts have forced some speculators betting on the spread to go out of business, including the Amaranth hedge fund, which lost more than $6 billion on gas futures in 2006.

Traders said the biggest market uncertainty remains the restart date for Freeport LNG's export plant in Texas.

After several delays from October to November and then to December, Freeport now expects the facility to be back in operation in the second half of January, pending regulatory approvals.

Analysts have long said Freeport would probably be back online during the first or second quarter of 2023 because further work is required to satisfy federal regulators, including training staff in new safety procedures, before the plant can be restarted.

Whenever Freeport returns, U.S. gas demand will jump. The plant can turn about 2.1 Bcf/d of gas into LNG, which is about 2% of U.S. daily production.

The Elisa Larus LNG vessel that had been waiting to pick up fuel from Freeport has since moved on to Cheniere Energy Inc.'s Corpus Christi export plant in Texas.

But several other vessels, including Prism Diversity, Prism Courage and Prism Agility, continue to wait in the Gulf of Mexico to pick up LNG from Freeport. Some have been waiting since early November.

U.S. gas output rising

Data provider Refinitiv said that average gas output in the U.S. Lower 48 states has risen to 98.3 Bcf/d so far in January, up from 96.7 Bcf/d in December. That compares with a monthly record of 99.9 Bcf/d in November 2022.

With the weather expected to remain warmer than normal until late January, Refinitiv projected average U.S. gas demand, including exports, would hold at 120.8 Bcf/d this week and next. The forecast for this week was lower than Refinitiv's outlook on Jan. 9.

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