US natural gas futures fall nearly 4 percent

US natural gas futures on Monday fell nearly 4 percent on forecasts for warmer-than-normal temperatures through late April that are expected to put an end to late spring heating demand. After rising 10 percent over the last two weeks in a technically driven short-covering rally on cooler weather, US gas futures for May delivery fell 7.8 cents, or 3.9 percent, to settle at $1.91 per million British thermal units.
Over the weekend, both US and European weather models switched from forecasting cooler-than-normal temperatures through the end of April to warmer-than-normal during that time.
Early estimates from analysts show utilities pulled 4 billion cubic feet of gas from storage during the colder-than-normal week ended April 8. That compares with builds of 12 bcf during the prior week and 49 bcf a year earlier, and a five-year average increase of 22 bcf.
The amount of gas in inventory, however, was expected to remain at record highs for this time of year at around 2.5 trillion cubic feet after utilities left more fuel in storage than usual during the warmer-than-normal winter. With so much gas left in stockpiles, analysts said prices must remain low for the rest of 2016 to pressure producers to reduce output and encourage power generators to keep burning more gas instead of coal. Otherwise, gas supplies could hit storage limits of 4.3 tcf by the end of the April-October summer injection season.
The US power sector has burned about 24.0 bcfd so far this year, compared with 22.8 bcfd a year earlier, Thomson Reuters data showed. Power generators used record-high amounts of gas in 2015 and were expected to use even more in coming months, according to federal estimates.
Spot prices at the Henry Hub benchmark in Louisiana have averaged $1.96 so far in 2016, the lowest start to a year since 1999, while futures for the balance of 2016 were fetching $2.24. That compares with an average of $2.61 in 2015, the lowest since 1999. US drillers in the lower 48 states have already cut dry gas output, producing on average 73.1 bcf per day so far this year versus a record high of 73.5 bcfd for all of 2015, according to Thomson Reuters Analytics.