US natural gas futures on Wednesday fell to a three-week low on forecasts for slightly weaker demand from the power sector, giving back all of Tuesday's gains. After a brief short covering rally on Tuesday, front-month gas futures for June delivery on the New York Mercantile Exchange fell 4.7 cents, or 2.3 percent, to settle at $2.001 per million British thermal units.
In early estimates, analysts said utilities likely added about 78 billion cubic feet of gas into storage during the week ended May 13. That compares with builds of 56 bcf last week, 98 bcf in the same week a year ago and a five-year average of 91 bcf. Analysts said prices would have to remain low in 2016 to pressure producers to cut output and encourage power generators to keep burning gas instead of coal to prevent storage from reaching peak capacity at the end of October after utilities left record amounts of fuel in inventory following a warm winter.
Spot prices at the Henry Hub have averaged $1.95 so far in 2016, the lowest start to a year since 1999. Futures for the balance of 2016 are fetching $2.33. That compares with an average of $2.61 in 2015 and is the lowest since 1999. The US power sector is doing its part to use that cheap gas, burning about 24.8 billion cubic feet per day so far this year compared to 22.8 bcfd a year earlier, according to Thomson Reuters Analytics. Power generators used record-high amounts of gas in 2015 and were expected to burn even more this year, according to federal estimates.
US drillers have cut dry gas output in the lower 48 states, to 73.2 bcfd on average so far this year from a record 73.5 bcfd for 2015. Analysts said a hot summer would push generators to burn even more gas to keep air conditioners humming, while an active hurricane season could reduce some production in the Gulf of Mexico region. Thomson Reuters Analytics forecast the summer would be hotter than last year, with July about 10 percent warmer than the 30-year norm and August about 6 percent warmer. Most meteorologists forecast the upcoming hurricane season will be a little more active than usual after a quiet 2015.