US natural gas futures fall despite coming spring snowstorm

US natural gas futures ended lower on Friday as the market focuses more on the warm weather forecast for much of the rest of March instead of the snowstorm expected to hit the Northeast this weekend on the first day of spring. After rising for nine of the past 10 trading days in a technical, short-covering rally, front-month gas futures on the New York Mercantile Exchange closed down 2.9 cents, or down 1.5 percent, at $1.907 per million British thermal units, pushing the contract out of overbought territory.
Traders said the technical rally started on March 4, when prices fell to an intraday low of $1.611, the lowest level since August 1998. For the week, the contract was up about 4 percent, putting it up for a second week in a row after gaining 9 percent last week. Despite the recent gains, the front-month was still down about 19 percent since the start of the year.
Utilities pulled 1 billion cubic feet of gas out of storage during the week ended on March 11. Analysts had estimated the draw, which could be the last of the winter season, at 2 bcf. Analysts said the small draw last week would leave stockpiles at the end of March at an all-time high of around 2.5 trillion cubic feet, topping the current end-of-withdrawal-season record high of 2.369 tcf set in 2012.
With so much gas in inventory going into the April-October summer injection season, analysts said, prices would have to remain low for the rest of 2016 to prevent supplies from hitting storage limits at the end of October. Gas prices at the Henry Hub benchmark in Louisiana averaged $2.61 in 2015, their lowest since 1999. So far this year, spot prices have averaged $2, while futures were fetching $2.24 for the balance of 2016 and $2.73 for calendar 2017.
Those low prices in 2016 are expected to pressure producers to reduce output and encourage power generators to keep burning record amounts of gas instead of coal. A hot summer would also help sop up some surplus gas, with temperatures expected to be higher than normal by 20 percent in July and 16 percent in August, according to Thomson Reuters Analytics.