US natural gas futures edge higher

US natural gas futures on Tuesday edged higher after two days of losses as the power sector burned more gas and on steady forecasts for seasonably cool weather expected to keep heating demand at normal levels. After losing over 5 percent over the past two trading days, front-month gas futures on the New York Mercantile Exchange closed up 3.5 cents, or 1.91 percent at $1.863 per million British thermal units.
Despite the small gain in the front-month, futures for the balance of 2016 and the summer of 2016 were each down about 2 percent on Tuesday. "With the lower demand shoulder season right around the corner it will be difficult for the market to stage a strong upside rally from current levels," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note.
After a warmer-than-normal winter (November-March) with heating demand running 14 percent below normal due to the warming effect of the El Nino weather pattern, analysts said stockpiles would end the withdrawal season at an all-time high around 2.5 trillion cubic feet. That would top 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 of 4.3 tcf at the end of October.
Gas prices at the Henry Hub benchmark in Louisiana averaged $2.61 in 2015, the lowest since 1999. So far this year, spot prices have averaged $1.99. That is the lowest level since 1999 for the first quarter, when gas demand and prices are historically at their highest for the year. Looking forward, futures were fetching $2.19 for the balance of 2016 and $2.72 for calendar 2017. The 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 19 percent in July and 18 percent in August, according to Thomson Reuters Analytics. The power sector burned a record 26.6 billion cubic feet per day in 2015 and was expected to burn 27.3 bcfd this year, according to federal estimates, making gas instead of coal the primary fuel used by the nation's generators for the first year ever.