US natural gas futures on Thursday held mostly steady as traders took profits after a four-week rally despite a slightly bigger-than-expected weekly storage build and forecasts for a little less hot weather over the next two weeks. After rising 27 percent over the past four weeks, front-month gas futures for July delivery on the New York Mercantile Exchange rose 2.1 cents, or 0.8 percent, to settle at $2.698 per million British thermal units.
The US Energy Information Administration said utilities added 62 billion cubic feet of gas into storage during the week ended June 17, modestly higher than the 58-bcf consensus estimate of analysts in a Reuters poll. That compared with builds of 69 bcf in the prior seven-day period, 77 bcf a year earlier and a five-year average of 88 bcf.
Analysts said the recent rally showed the market is no longer worried about storage hitting maximum levels later this autumn because the high levels of gas in inventory versus past years has narrowed as power generators use record amounts of the fuel instead of coal to meet heavy air conditioning use.
Earlier this year, analysts forecast prices would have to remain relatively low in 2016 to pressure producers to cut output and encourage power generators to burn more gas instead of coal to prevent storage caverns from filling to maximum capacity after a warm winter left stockpiles at record highs. Spot prices at the Henry Hub benchmark have averaged $2.02 so far this year, while futures for the balance of 2016 were fetching $2.81. That compares with $2.61 in 2015, the lowest since 1999.
But with spot prices at their highest level since August, some power generators have switched back to coal. The premium of gas futures over coal futures climbed over $1 per mmBtu for the first time since August. Traders say it becomes profitable for some generators to burn coal once the gas premium rises above $1 per mmBtu due to the lower efficiency of coal plants and coal's higher environmental and transport costs. The US power sector has burned on average 25.9 bcf per day so far this year, topping last year's record 23.7 bcfd during the same period, according to Thomson Reuters Analytics. US drillers, meanwhile, have reduced dry gas output in the lower 48 states to an average of 73.0 bcfd so far this year from a record 73.5 bcfd in 2015.