US natural gas futures ended up a few cents on Friday in a brief round of short covering before the weekend after earlier sinking to within a penny of a 1995 low.
Front-month gas futures on the New York Mercantile Exchange closed up 2.7 cents, or 1.6 percent, at $1.666 per million British thermal units.
Earlier Friday, the front-month fell to a contract low of $1.611, the lowest level since August 1998. If the contract slipped below $1.61, it would drop to the lowest level since September 1995. Futures have been on a downward spiral for months - off more than 28 percent since the start of the year - as drillers continue to pull near record amounts of gas out of shale fields despite forecasts for warm weather and light heating demand and with stockpiles at record high levels.
"The one-two punch of the US natural gas shale production revolution coupled with a very warm winter heating season is sending prices back to 1990 levels," said Dominick Chirichella, senior partner at the Energy Management Institute in New York, noting the next stopping point could be as low as $1.45 per mmBtu.
US gas production has increased every year since 2006 when drillers developed the technology allowing them to unlock gas trapped in shale rocks. Total output in 2016 was expected to reach 79.69 billion cubic feet per day, topping the 79.13 bcfd record set in 2015, according to federal estimates.
But with storage levels expected to end the withdrawal season at a record high at the end of March, analysts warned producers will have to reduce their 2016 drilling plans to avoid overfilling storage caverns during the summer injection season. Thomson Reuters Analytics expects utilities to pull just 78 bcf from storage during the rest of March, leaving total stockpiles around 2.458 trillion cubic feet. That would top the current record end of withdrawal season high set in 2012 of 2.369 tcf.
To encourage drillers to cut back and industrial and power generation customers to use more gas, analysts said prices will have to remain low in 2016. "Barring a very hot summer cooling period it may be unlikely that the spot contract even trades with a $2 handle in the medium term," Chirichella said. Futures for April through July were all trading below $2. Last year, gas prices averaged $2.61 per mmBtu, the lowest since 1999.
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