US natural gas futures ended lower for a second straight day on Friday, hit by profit-taking before the weekend and fairly mild extended weather forecasts that have raised the odds that storage builds will pick up sharply in coming weeks. With inventories at record highs for this time of year and production at or near an all-time peak, many traders remain sceptical of the upside, particularly with tapering summer heat cutting the need for air-conditioning.
"We had a heck of a run-up earlier in the week. I think people are looking at the (milder) weather and deciding to take a little profit off the table," a New England-based trader said. Front-month gas futures on the New York Mercantile Exchange ended down 9.4 cents, or 3.1 percent, at $2.943 per million British thermal units after trading between $2.92 and $3.062.
On Thursday, the nearby contract climbed to a five-week high of $3.07 before settling slightly lower on profit-taking after a 14 percent run-up in the previous three sessions. Weakness up front on Friday widened spreads to winter months, with the January premium to October gaining 3.6 cents, or 7.5 percent, to close at 51.3 cents. That spread settled on Tuesday at 45.8 cents, its smallest in nearly 2-1/2 months.
Despite two days of selling, gas prices ended the week up about 10 percent. Private forecaster MDA EarthSat expects temperatures for the eastern two-thirds of the nation to average normal or below normal for at least the next two weeks. Some traders were also concerned that if gas prices try to push above $3, some utilities that have been using cheap gas rather than coal to generate power could switch back.
A loss of that utility demand, which helped prop up prices this summer, could lead to bigger weekly storage builds and renew concerns about inventories climbing to near capacity before winter. Data from Baker Hughes on Friday showed that the gas-directed rig count posted its 15th drop in 17 weeks, falling by four this week to 448, the lowest since June 1999.
The nearly steady decline in gas-directed drilling over the last 11 months - the count is down 52 percent since peaking at 936 in October - has fed expectations that producers were getting serious about stemming the flood of record supplies. But so far there is little evidence that gas output is slowing.
Dry gas drilling may be largely uneconomical at current prices, but the associated gas produced from more-profitable shale oil and shale gas liquids wells is likely to keep gas production at a record high for a second straight year. The US Energy Information Administration earlier this week said it expected marketed gas production in 2012 to hit a record for a second straight year, climbing 4 percent from 2011 levels to 68.86 bcf per day.