US natural gas futures on Tuesday gained 3 percent to a two-week high on forecasts for steady, seasonably cool weather through the middle of April. On its last day as the front-month, April futures on the New York Mercantile Exchange closed up 5.5 cents, or 2.98 percent, at $1.903 per million British thermal units.
May futures, which will soon be the front-month, were up 4.9 cents at $1.985. "There is a question of whether power generation will be able to sustain its record high levels at those prices," Aaron Calder, analyst at Gelber & Associates in Houston, said in a note referring to the May futures. In early estimates, analysts forecasts utilities pulled about 21 billion cubic feet of gas from storage during the week ended March 25 after adding 15 bcf during the prior week ended March 18.
After a warmer-than-normal winter (November-March), with heating demand running 14 percent below normal on account of the warming effect of the El Nino weather pattern, analysts expect stockpiles to end the withdrawal season at an all-time high around 2.5 trillion cubic feet at the end of March. That would top the end-of-withdrawal-season record high of 2.472 tcf set at the end of March 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 $1.97. That is the lowest since 1999 for the first quarter, when gas demand and prices are historically at their highest for the year. Futures were fetching $2.15 for the balance of 2016.
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 absorb some surplus gas, with temperatures expected to be higher than normal by 19 percent in July and 13 percent in August, according to Thomson Reuters Analytics.
Looking forward, however, analysts said prices would have to rise to encourage drillers to boost production to meet growing exports and industrial demand. Futures for 2017 climbed to $2.83, their highest since December, while futures for 2018 climbed to $2.90, their highest since January.
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