US natural gas futures down after two weeks of gains

US natural gas futures fell on Friday after traders said it became too technically overbought following two weeks of big gains on forecasts for much colder weather and rising heating demand. After rising 29 percent over the prior nine days, front-month gas futures fell 6.9 cents, or 2 percent, to settle at $3.436 per million British thermal units. Earlier in the session, the contract hit $3.568, its highest since December 19.
Despite the decline, the front month remained in overbought territory with a relative strength index (RSI) over 70 for a sixth day in a row, its longest since June 2016. On Thursday, the RSI reached 87.1, its highest since November 2014. For the week, the front month gained 11 percent, marking its third consecutive weekly gain.
"Steep gains this week had the market feeling toppy. Traders are starting to accept the fact that some intense cold is coming late next week. But while the cold will boost withdrawals there is plenty of gas in the storage to absorb what is coming," Kent Bayazitoglu, director of market analytics at energy consulting firm Gelber & Associates in Houston, said in a report.
Stockpiles, which have remained at record highs since April, were expected to fall below year-ago levels in the coming weeks if forecasts for near-normal cold in December and February and below-normal cold in January prove correct, especially with US production stuck at its lowest level since 2013 for this time of year. Thomson Reuters data showed US production averaged 71.1 billion cubic feet per day (bcfd) over the past 30 days, compared with 73.1 bcfd during the same period in 2015, 72.0 bcfd in 2014 and 67.4 bcfd in 2013.
Output, however, has increased in recent weeks, rising to an average of 71.2 bcfd over the past seven days. Drillers were pulling more gas out of the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia since prices there have jumped to their highest since March.
Overall, US gas usage was expected to rise to an average of 95.2 bcfd next week and to 105.9 bcfd in two weeks as the weather turns colder from 84.4 bcfd this week, Reuters data showed. While heating demand was up, power usage of gas was down because prices for the fuel were about 60 percent higher than a year ago. Over the next two weeks, the power sector was expected to burn 21.8 bcfd versus 24.5 bcfd during the same period last year, the data showed. Gas supplies, meanwhile, were projected to hold at around 78.7 bcfd over the next two weeks, the same as this week, data showed.