US natural gas futures gained over 1 percent on Wednesday, rising to the highest level in three weeks, on technical buying, forecasts for weaker production and strong demand as the market awaited guidance from a government storage report. Front-month gas futures on the New York Mercantile Exchange closed up 4.5 cents at $2.891 per million British thermal units.
That was up for a third day in a row, the biggest three-day gain since January. The increases pushed the premium of gas futures over coal futures over $1 for the first time since mid-May, making it more likely some generators will burn coal instead of gas to produce power. In early estimates, analysts said US utilities likely added 112 billion cubic feet of gas into storage during the week ended June 5.
That compared with builds of 132 bcf in the prior week, the second largest build on record, 109 bcf a year earlier and a five-year average increase of 89 bcf. The US Energy Information Administration will release its storage report at 10:30 am EDT (1430 GMT) on Thursday. The Global Forecast System weather model for the lower 48 US states called for temperatures to remain above normal for the next two weeks, with 190 population-weighted cooling degree days. That compared with Tuesday's forecast of 190 CDDs and a 30-year norm of 147 CDDs.
Thomson Reuters Analytics forecast consumption in the lower 48 would average 60.0 billion cubic feet per day over the next two weeks, compared with Tuesday's forecast of 60.1 bcfd and a 30-year norm of 53.2 bcfd. Despite the warm weather, residential, commercial and industrial customers were expected to continue using less gas than usual. Power generators, however, kept burning more of the fuel because it was cheaper than coal.
Power generators were expected to use an average of 32.0 bcfd of gas over the next two weeks. That compared with Tuesday's forecast of 32.2 bcfd, 24.2 bcfd a year earlier and a 30-year norm of 24.6 bcfd, according to Thomson Reuters Analytics.
Drillers were expected to produce 70.8 bcfd in the lower 48 on Wednesday, the least since October, down from 71.3 bcfd on Tuesday, according to Thomson Reuters Analytics. That compared with production of 68.6 bcfd a year ago and a record high of 74.5 bcfd in December. Traders noted the declines were likely due to maintenance on various pipes across the country.