US natural gas futures dropped as much as 5.5% on Friday on forecasts of milder weather, and as shutdowns to prevent the spread of the coronavirus led to dwindling fuel demand and rising stockpiles.
Front-month gas futures for May delivery on the New York Mercantile Exchange fell 6.9 cents, or 3.8%, to settle at $1.746 per million British thermal units.
"We're just seeing prices consolidate after the recent gains and look for a direction. There are still risks to demand in the short term that are preventing the stronger rally towards $2," said Daniel Myers, market analyst at Gelber & Associates in Houston.
"The weather is mild right now, and there's risk that LNG export cargoes will be reduced in the coming months over the summer. So, short term reduced demand from the coronavirus shut-ins keeping a lid on price, but longer term the market is expecting a recovery due to reduced production."
Demand in the Lower 48 states, including exports, meanwhile, is expected to decline as the weather turns milder, falling from 88.1 bcfd this week to 87 bcfd next, according to Refinitiv.
For the week, prices registered their first fall in three, on expectations demand will decline due to government lockdowns to slow the spread of the coronavirus.
On Wednesday, prices closed at their highest level in nine-weeks on expectations production will decline as drillers shut oil wells in shale basins due to a massive collapse of US crude prices. Analysts have said that what is bad for oil is good for gas because those oil wells also produce a lot of gas.
Gas output in the Lower 48 states fell to an more than 11-week low of 91.7 bcfd on Thursday from 92.1 bcfd on Wednesday, according to data provider Refinitiv.
The US Energy Information Administration (EIA) said utilities injected 43 billion cubic feet (bcf) of gas into storage during the week ended April 17. The increase boosted stockpiles to 2.140 trillion cubic feet (tcf), 20.5% above the five-year average of 1.776 tcf for this time of year.
Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading even higher than the front-month on expectations demand will jump as the economy snaps back once governments loosen travel and work restrictions.
In the long-term, the EIA projected the reduction in drilling will cut gas production to an annual average of 91.7 billion cubic feet per day (bcfd) in 2020 and 87.5 bcfd in 2021 from a record 92.2 bcfd in 2019. That would be the first annual production decline since 2016 and the first time output fell for two consecutive years since 2005.
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