US natural gas futures on Friday declined on rising production and mixed weather forecasts for a little less heat over the next two weeks and slightly lower power demand for air conditioning. Front-month gas futures for September delivery on the New York Mercantile Exchange fell 6.2 cents, or 2.2 percent, to settle at $2.772 per million British thermal units.
After rising 4 percent over the prior two weeks, the front-month was on track to decline about 4 percent this week. The US and European weather models both called for continued above-normal temperatures for the lower 48 US states through late August, with a slightly milder forecast from the European model.
A heat wave continued to bake Texas but peak demand on Friday was expected to fall short of Thursday's high for the year. The US Energy Information Administration said utilities pulled 6 billion cubic feet of gas out of storage during the much hotter-than-normal week ended on July 29. That was only the third weekly withdrawal ever in the summer, following two in 2006, according to EIA data going back to 1994.
Looking ahead, analysts forecast utilities added 20 bcf during the week ended August 5. That compares with builds of 57 bcf during the same week a year ago and a five-year average for that week of 53 bcf. Despite smaller-than-normal injections, analysts still expect stockpiles to start the winter heating season in November at an all-time high after utilities left record amounts of gas in storage at the start of the summer season in April. That inventory glut has kept a lid on next-day prices at the Henry Hub benchmark in Louisiana, which have averaged $2.17 so far this year. That compares with $2.61 in 2015, the lowest since 1999. Those low prices have encouraged power generators to burn record amounts of gas instead of coal and prompted producers to reduce output as they wait for prices to rise. Futures for the balance of the year were trading around $2.95, while calendar 2017 futures were fetching $3.16. Since the start of the year, US drillers have pulled, on average, 72.9 bcf per day out of the ground, compared with 73.1 bcfd a year earlier. Over the past month, however, output averaged 72.7 bcfd versus an average of 72.0 bcfd during the prior 30-day period, according to Thomson Reuters data.