US natural gas futures on Thursday climbed as a decline in projected output offset forecasts for lower cooling demand through late July. After falling to a 17-week low on Wednesday, front-month gas futures for August delivery rose 4.8 cents, or 1.7 percent, to settle at $2.888 per million British thermal units. On Wednesday, the contract settled at $2.840, its lowest close since March 7.
With the recent slump in the front-month, the premium of August 2017 futures over the same month in 2018 fell to a 13-month low. In California, Southern California Gas urged shippers to monitor their natural gas receipts and deliveries this week as a mini heat wave bakes Los Angeles, according to its website. US gas consumption was projected to rise to 77.0 billion cubic feet per day next week from 73.3 bcfd this week after many businesses closed for the Fourth of July holiday, according to Reuters data. Those forecasts were lower than the outlook earlier in the week.
Gas production, however, was expected to fall to 71.1 bcfd on Thursday after reaching a 14-month high of 72.4 bcfd over the weekend, the data showed. Over the past 30 days, output has averaged 71.5 bcfd, up from 70.8 bcfd the same period a year earlier but still down from 73.4 bcfd in 2015 when production was at a record high. Analysts said utilities likely added 64 billion cubic feet of gas to storage during the week ended June 30, putting inventories about 7 percent above normal for this time of year. That compared with a 38 bcf increase a year earlier and a five-year average build of 66 bcf.
Meteorologists forecast temperatures in July would be slightly warmer than normal but not quite as hot as last year, prompting power generators to burn a little more gas than usual to meet cooling demand, though less than in 2016. Temperatures in August are expected to be near average. Analysts forecast gas inventories will rise by only 1.6 trillion cubic feet during the April-October injection season because of relatively low output so far in 2017 and higher sales abroad.
That build, which is far below the five-year average of 2.1 tcf, would leave storage at just 3.7 tcf at the end of October, below the year-earlier record of 4.0 tcf and the five-year average of 3.9 tcf. After two unusually mild winters, traders say the possibility of low inventories and even normally cold weather during December through February could cause prices to spike late this year. But with inventories remaining above normal for this time of year and production rising, speculators have lost the rationale to keep bullish bets near record highs over the past several weeks.