NEW YORK: US natural gas futures slid about 2% to a four-week low on Tuesday on forecasts for less hot weather over the next two weeks than previously expected, which should cut the amount of gas power generators need to burn to keep air conditioners humming.
Energy analysts also noted the tremendous oversupply of gas in storage has kept a lid on prices all year.
There was still about 12% more gas in storage than normal for this time of year even though weekly builds, including a rare decline during one week in August, have been smaller than normal in 13 of the past 14 weeks.
On its second to last day as the front-month, gas futures for September delivery fell 3.4 cents, or 1.7%, to $1.922 per million British thermal units (mmBtu) at 9:43 a.m. EDT (1343 GMT), putting the contract on track for its lowest close since July 29.
After dropping about 14% over the past six days, the front-month entered technically oversold territory for the first time since late July. It was also the first time the contract fell for six days in a row since March. Futures for October, which will soon be the front-month, were down about 1.9% to $2.09 per mmBtu.
Producers increase and decrease output in reaction to prices, but it usually takes a few months for changes in drilling activity to show up in the production data.
Average monthly spot prices at the US Henry Hub benchmark in Louisiana hit a 12-month high of $3.18 per mmBtu in January before dropping to a 44-month low of $1.72 in February and a 32-year low of $1.49 in March, according to Reuters and federal energy data.
In reaction to that price plunge, producers cut average monthly output from 106.0 billion cubic feet per day (bcfd) in February to 102.7 bcfd in March, 101.5 bcfd in April, and a 17-month low of 101.3 bcfd in May, according to federal energy data.
Winter storms at the start of the year caused output to fall from a record 106.3 bcfd in December to 103.6 bcfd in January.
As monthly Henry Hub spot prices increased to $1.60 per mmBtu in April, $2.12 in May, and $2.54 in June, some producers, including EQT and Chesapeake Energy, started to increase drilling activities, boosting output to 101.0 bcfd in June and 103.4 bcfd in July.
But with average spot Henry Hub prices back down to $2.08 per mmBtu in July and $2.01 so far in August, analysts said output would likely decline in coming months as some producers reduce drilling activities again.