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US natural gas futures fell to a four-week low on Wednesday on forecasts for domestic demand and exports to drop as businesses remain closed due to government lockdowns to stop the spread of the coronavirus.

That decline came despite expectations output will slow as a collapse in oil prices due to the pandemic prompted energy firms to shut oil wells and slash spending on new drilling. Those oil wells also produce a lot of gas.

Front-month gas futures for June delivery on the New York Mercantile Exchange fell 10.4 cents, or 6.0%, to settle at $1.616 per million British thermal units, their lowest close since April 15.

Despite the decline, the front-month at the Henry Hub benchmark in Louisiana has traded higher than the Title Transfer Facility (TTF) in the Netherlands since late April. Henry Hub futures were also trading higher than TTF in July and August.

Analysts said higher US prices should prompt buyers of liquefied natural gas (LNG) to cancel more US cargoes in coming months. In April, buyers canceled about 20 US cargoes due to be shipped in June.

Looking ahead, US gas futures for the balance of 2020 and calendar 2021 were trading higher than the front-month on expectations demand will increase once governments loosen coronavirus travel and work restrictions.

The US Energy Information Administration projected gas production will fall to an annual average of 89.8 billion cubic feet per day (bcfd) in 2020 and 84.9 bcfd in 2021 from a record 92.2 bcfd in 2019 due to the reduction in drilling.

Data provider Refinitiv said average gas output in the US Lower 48 states has fallen to 90.2 bcfd so far in May, down from an eight-month low of 92.9 bcfd in April and an all-time monthly high of 95.4 bcfd in November.

EIA projected coronavirus lockdowns will cut US gas use - not including exports - to an average of 81.7 bcfd in 2020 and 79.2 bcfd in 2021 from a record 85.0 bcfd in 2019.

With the weather expected to turn milder, Refinitiv projected demand in the Lower 48 states, including exports, will fall from an average of 85.7 bcfd this week to 78.8 bcfd next week. That is similar to Refinitiv's forecasts on Tuesday. Even though the coronavirus is reducing global gas use, the EIA still expects US exports to hit record highs in coming years as more LNG export plants and pipelines enter service. Still, the agency has reduced its projections on the pace of that growth due to the pandemic.

Refinitiv said US LNG exports averaged 7.2 bcfd so far in May, down from a four-month low of 8.1 bcfd in April and an all-time high of 8.7 bcfd in February.

Copyright Reuters, 2020

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