US natural gas jumps as output likely to fall

US natural gas futures jumped over 5% on Thursday on expectations gas production will drop as drillers will cut oil production in shale basins due to a collapse in crude prices. Those oil wells also produce a lot of gas.

That increase came despite a bigger-than-expected weekly storage build and long-term forecasts for demand to drop as companies shut for the coronavirus.

Front-month gas futures for May delivery on the New York Mercantile Exchange rose 8.8 cents, or 5.5%, to settle at $1.686 per million British thermal units. On Wednesday, the contract closed within a nickel of its April 2 settle, which was its lowest since August 1995.

US oil futures, meanwhile, closed at their lowest since February 2002 for a second day in a row on Thursday.

The US Energy Information Administration (EIA) said utilities injected 73 billion cubic feet (bcf) of gas into storage during the week ended April 10.

That is more than the 64-bcf build analysts forecast in a Reuters poll and compares with an increase of 73 bcf during the same week last year and a five-year (2015-19) average build of 27 bcf for the period.

The increase for the week ended April 10 boosted stockpiles to 2.097 trillion cubic feet (tcf), 21.4% above the five-year average of 1.727 tcf for this time of year.

Even before the coronavirus started to cut global economic growth and energy demand, gas was already trading near its lowest in years as record production and months of mild winter weather allowed utilities to leave more fuel in storage, making shortages and price spikes unlikely.

Looking ahead, however, gas futures for the balance of 2020 and calendar 2021 were trading much higher than the front-month on expectations demand will jump in coming months, as the economy snaps back once governments loosen travel and work restrictions after slowing the spread of coronavirus.

The premium of futures for May 2021 over May 2020 rose a record high for a second day in a row, while calendar 2021 has traded over 2022 for 26 days and over 2025 for 16 days.

As the weather turns milder, data provider Refinitiv projected gas demand in the US Lower 48 states, including exports, would slide from 97.6 bcfd this week to 95.6 bcfd next week. That is similar to Refinitiv's forecasts on Wednesday.

US pipeline exports to Canada held at a 27-month low of 1.4 bcfd for a second day on Wednesday, according to Refinitiv. That compares with an average of 2.5 bcfd last week and an all-time daily high of 3.9 bcfd on Jan. 25, 2018.