15 April 2014, News Wires – US natural gas futures fell 1.3% on Monday, pressured by high gas production that offset the impact of a shot of cold Canadian air that will push near-freezing temperatures as far south as Texas and the South-east, boosting heating demand briefly this week.
Spot prices for gas and power jumped on the cold while the futures market focused on the longer-term weather outlook and supply, Reuters reported.
Strong gas production “is doing much to squash the latest rally despite a stubborn winter that refuses to go away,” said Kent Bayazitoglu, director of market analytics at Gelber & Associates in Houston.
Milder weather was forecast by week’s end.
Front-month natural gas futures on the New York Mercantile Exchange settled down 6 cents, or 1.3%, at $4.56 per million British thermal units.
The May Nymex contract traded between $4.539 and $4.646 per MMBtu which it hit overnight.
High production levels are expected to slowly fill storage ahead of next winter even if gas injections get a slow start.
Production was seen at 68.4 billion cubic feet on Monday, slightly less than Friday but well above the 30-day average, according to Thomson Reuters Analytics analysts.
The US Energy Information Administration said on Thursday that utilities injected 4 billion cubic feet of gas into storage, below analysts’ estimates and the five-year average injection.
Analysts will evaluate how the late winter weather may impact the speed at which the industry can refill storage before the next heating season begins in November.
Gas in storage is now at 826 Bcf, the lowest for this time of year since 2003.
While the cold spell is too short to cause utilities to withdrawal gas from storage, “the cold will slash injections in a season where there is a massive deficient to prior years,” Bayazitoglu said in a note.
In early estimates, analysts forecast an injection of about 36 Bcf, above the 25-Bcf injection during the same week last year and in line with the five-year average injection of 37 Bcf.
Gas prices for the rest of the year will have to rise to encourage drillers to produce more gas for storage and avoid shortages and price spikes next winter.
Sentiment about drilling for oil may be beginning to shift as gas prices climb, executives with small energy producers said last week at an industry conference.
Gas prices in the Haynesville shale in north Louisiana have improved dramatically and that will lead to increased activity, the chairman of Matador Resources told the OGIS conference in New York.
“US natural gas prices would need to move up to the $5.75-$6.50/MMBtu range to achieve return parity and generate a rotation of rigs away from oil and towards gas,” analysts at Goldman Sachs said in a client’s note on Monday.
In the cash market, next-day gas at Henry Hub, the benchmark US supply point in Louisiana, eased 2 cents to average $4.63 per MMBtu on the IntercontinentalExchange.
Other gas and power prices reacted to the cold weather.
In New York, gas jumped from a four-month low, rising 73 cents on the cold spell to an average of $4.297 per MMBtu.
Chicago gas also rose, climbing 15 cents to average $4.87 per MMBtu.