US natural gas futures ended lower on Friday for the second straight day, pressured by a slightly milder trend in the extended weather outlook despite expectations for some near-term heat that should kick up demand in the Northeast and Midwest.
"It was a hot-weather play early in the week, but it looks like the forecast turned a bit milder," said Steve Mosley at The SMC Report in Arkansas, noting the outlook for late in the 10-day forecast turned milder. Front-month gas futures on the New York Mercantile Exchange, which expire next Wednesday, ended down 10.6 cents, or 2.7 percent, at $3.771 per million British thermal units after trading between $3.764 and $3.904.
Despite a two-day loss of 4.8 percent, the front month managed to eke out a 1 percent gain for the week, its first weekly gain after sinking 12 percent in the previous three weeks. The gas price slide last week to a three-month low of $3.71 made gas nearly competitive with coal for power generation. But a steep drop in Central Appalachian coal prices this week to an eight-month low of about $54 per short ton kept coal the fuel of choice for electric utilities.
Many traders remained sceptical of the move up in gas prices earlier this week with inventories comfortable and gas production flowing at or near a record high. MDA Weather Services still expects a broad area of above-normal to much-above-normal temperatures to move into the Midwest and Northeast in the next few days but did note that the six-to-10-day outlook turned cooler late in the period.
Baker Hughes data on Friday showed the gas-directed rig count fell this week by four to an 18-year low of 349. Despite a steep decline in dry gas drilling over the last 20 months, production has not slowed much, if at all. The Energy Information Administration still expects gas output in 2013 to post a record high for a third straight year.
The EIA reported on Thursday that domestic gas inventories rose last week by 91 billion cubic feet to 2.438 trillion cubic feet. While traders noted the weekly build was in line with the Reuters poll estimate of 90 bcf, some pegged it as bearish, coming in well above the five-year average for that week of 80 bcf. Mild late spring weather has driven injections above that benchmark for three straight weeks. Early injection estimates for next week's report range from 75 bcf to 95 bcf, versus a 58-bcf build during the same week last year and a five-year average rise for that week of 79 bcf.