US natural gas futures jumped almost 5 percent on Wednesday to their highest level since mid-February due to a front-month switch to the more expensive May contract from April as well as forecasts for more cool weather over the next two weeks. After rising 6 percent over the prior three trading days front-month gas futures on the New York Mercantile Exchange closed up 9.3 cents at $1.996 per million British thermal units pushing the contract into technically overbought territory.
In early estimates, analysts forecasts utilities pulled about 22 billion cubic feet of gas from storage during the week ended March 25 after adding 15 bcf during the week ended March 18. After a warmer winter (November-March), with heating demand running 14 percent below normal on account of the El Nino weather pattern, analysts expect stockpiles to end the withdrawal season at an all-time high around 2.5 trillion cubic feet at the end of March. That would top the end-of-withdrawal season record high of 2.472 tcf set at the end of March 2012.
With so much gas in inventory going into the April-October summer injection season, analysts said prices would have to remain low for the rest of 2016 to prevent supplies from hitting storage limits of 4.3 tcf at the end of October. Gas prices at the Henry Hub benchmark in Louisiana averaged $2.61 in 2015, the lowest since 1999. So far this year, spot prices have averaged $1.97. That is the lowest for the first quarter, when gas demand and prices are historically at their highest for the year, since 1999. Futures were fetching $2.33 for the balance of 2016.
The low prices in 2016 are expected to pressure producers to reduce output and encourage power generators to keep burning record amounts of gas instead of coal. A hot summer would also help absorb some surplus gas, with temperatures expected to be 18 percent higher than normal in July and 12 percent higher in August, according to Thomson Reuters Analytics. Looking forward, however, analysts said prices would have to rise to encourage drillers to boost production to meet growing exports and industrial demand.Futures for 2017 were fetching $2.82, their highest since December, while futures for 2018 climbed to $2.90, their highest since January.