US natural gas futures fall three percent

US natural gas futures on Thursday fell 3 percent on a bigger-than-expected weekly storage build. Front-month gas futures for June delivery on the New York Mercantile Exchange lost 6.5 cents, or 3 percent, to settle at $2.08 per million British thermal units. Analysts noted air conditioning demand would start to exceed heating usage over the next two weeks as summer approaches, though both are expected to remain light for the rest of May.
The US Energy Information Administration said utilities added 68 billion cubic feet of gas into storage during the week ended April 29. That was slightly bigger than analyst estimates for a 64-bcf build in a Reuters poll and compared with increases of 73 bcf in the preceding week, 77 bcf during the same time a year ago and a five-year average increase of 64 bcf.
To prevent stockpiles from hitting peak capacity levels at the end of the April-October injection season after utilities left record amounts of fuel in storage following a warm winter, analysts said prices will have to remain low this year to pressure producers to cut output and encourage power generators to burn even more gas instead of coal. Spot prices at the Henry Hub averaged $1.95 so far in 2016, the lowest start to a year since 1999, while futures for the balance of 2016 were fetching $2.47. That compares with an average of $2.61 in 2015, the lowest since 1999.
The US power sector is doing its part to mop up cheap gas supplies, burning about 24.3 billion cubic feet per day so far this year versus 23.0 bcfd a year earlier, according to Thomson Reuters Analytics. Power generators used record-high amounts of gas in 2015 and were expected to use even more this year, according to federal estimates. US drillers have cut dry gas output in the lower 48 states, producing just 73.3 bcfd on average so far this year versus a record 73.5 bcfd for all of 2015. Analysts said a hot summer would push generators to burn even more gas to keep air conditioners humming, while an active hurricane season could cut some production in the Gulf of Mexico region.