US natural gas futures on Thursday edged higher on a slightly smaller-than-expected storage build and forecasts for continued hotter-than-normal weather over the next two weeks. The US Energy Information Administration said utilities added 34 billion cubic feet of gas into storage during the week ended July 15.
That was less than analysts' consensus estimate of 39 bcf in a Reuters poll and compared with builds of 64 bcf in the prior week, 70 bcf a year earlier and a five-year average of 61 bcf. After falling to four-week low overnight, front-month gas futures for August delivery on the New York Mercantile Exchange rose 3.4 cents, or 1.3 percent, to settle at $2.692 per million British thermal units.
That overnight decline came despite forecasts US power generators will burn record amounts of gas this week as consumers crank up air conditioners to cope with a heat wave blanketing a large part of the country. That coming heat has already caused the PJM and MISO power grid operators in the US Midwest and Mid-Atlantic to tell utility members to delay generation and transmission maintenance.
The stockpile of gas left in storage after the milder-than-normal winter of 2015-2016 has remained at seasonal highs since April and will likely top 2015's record high at the end of the injection season in early November, according to analysts. That storage glut has helped keep a lid on next-day prices at the Henry Hub benchmark in Louisiana, which have averaged just $2.12 so far this year. Futures for the balance of 2016 were fetching $2.79. That compares with $2.61 in 2015, which was the lowest since 1999.
Those low prices have prompted power generators to burn record amounts of gas instead of coal, while producers reduce output and wait for prices to rise. Futures for calendar 2017 were trading at $3.07. The US power sector has burned an average of 26.4 billion cubic feet per day so far in 2016, topping the record 24.8 bcfd of a year earlier, according to Thomson Reuters (TR) data. So far this year, US drillers have reduced average dry gas output in the lower 48 states to 73.0 bcfd from a record 73.5 bcfd in 2015. Production is expected to fall to 71.2 bcfd on Thursday, the lowest level since December, the TR data showed.