US natural gas futures ended down about 1.3 percent for the week after dropping about 1 percent on Friday on forecasts for milder spring-like weather and weaker heating demand. Front-month natural gas futures on the New York Mercantile Exchange closed down 3.1 cents, or down 0.69 percent, at $4.439 per million British thermal units.
The May NYMEX contracts trade between $4.40 and $4.48 per mmBtu on Friday. The contract is trading between the 100-day and the 14-day moving averages, according to Reuters data. The front-month is now up 5 percent since the start of the year. "Prices are trading slightly lower after failing to break through technical resistance at $4.50. Forecasts look warmer than they did yesterday and the market is pricing that in," Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a report.
MDA Weather Services forecast cool air from the Plains to the East Coast over the next five days, with building warmth over the Mid-Continent over the next six to 10 days, before cooler weather moves over the Upper Midwest over the next 11 to 15 days. The latest US computer weather model forecasts near normal temperatures over the next 15 days with a little more cold than a forecast six hours earlier, according to Thomson Reuters Analytics.
"The market is confronting storage levels that have dropped to an eleven-year low on the other hand, expectations of record production, plus limited temperature-linked demand during shoulder season could limit price rallies until the onset of summer air-conditioning load," said Addison Armstrong, senior director of market research at Tradition Energy, in a note. The number of rigs drilling for gas in the United States fell by 2 this week to 316, the lowest in 21 years, data from oil services firm Baker Hughes showed on Friday.
The US Energy Information Administration said utilities pulled 74 billion cubic feet of gas from storage last week. That matched analyst estimates and compares with a 95 bcf draw in the same week last year and a five-year average draw of 8 bcf. Many analysts expect this to be the last weekly withdrawal as the winter heating season draws to a close. Utilities have now withdrawn a record 3.012 trillion cubic feet of gas from storage since the start of the heating season in November, leaving just 896 bcf, the lowest since 2003.
FORWARD NYMEX PRICES The May 2014 continued to trade about 3 cents per mmBtu below the June 2014 contract on the NYMEX, the same as on Thursday, according to Reuters data. Gas contracts on the NYMEX for the balance of the year and winter 2014 each lost about two cents to $4.50 and $4.63 per mmBtu according to Reuters data.
Gas futures on the NYMEX for full-year 2015 lost about 3 cents to $4.26 per mmBtu, while the 2016 contract held at $4.13, according to Reuters data. Implied volatility on the NYMEX, a key component dealer use to price options, fell to 28 on Thursday, the lowest since July 2013, down from 29.2 on Wednesday, according to Reuters data. The premium of the front-month gas contract on the NYMEX over the front-month Appalachian coal contract eased to $1.95 per mmBtu from $2 on Thursday. Traders consider a gas premium of $2 over coal as wide enough to offset the cost of transporting coal from mines to generating plants and the lower efficiency of a coal plant compared with a gas plant.
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