US natural gas futures fall after two-year high

US natural gas futures edged lower after rising to a near two-year high on Tuesday, in a break from a two-week rally, despite forecasts for colder weather and higher heating demand through late December. After rising 21 percent over the past two weeks, front-month gas futures fell 1.9 cents, or 0.5 percent, to settle at $3.635 per million British thermal units. Earlier in the session, the contract rose to $3.732, its highest since December 18, 2014.
That was the second decline in 12 trading days. During that time the contract gained 35 percent. The front-month, however, remained in overbought territory for an eighth day in a row, its longest streak since June. The colder forecasts also pushed the premium of March futures over April up by almost 500 percent since it hit a recent low of 3.2 cents on November 17 as traders snapped up March contracts. The market uses March as a proxy for the winter. Colder forecasts generally mean higher winter prices.
The industry calls the March-April spread the "widow maker" because its rapid moves based on changing winter forecasts have wiped out many traders. Analysts forecast utilities pulled just 39 billion cubic feet of gas out of storage during the warmer-than-normal week ended December 2. That compared with draws of 50 bcf in the prior week, 69 bcf in the same week a year ago and a five-year average decrease of 61 bcf.
Stockpiles, which have remained at record highs since April, were expected to fall below year-ago and five-year average levels in coming weeks if forecasts for near-normal cold in December and above-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 71.2 billion cubic feet per day (bcfd) over the past 30 days, compared with 73.3 bcfd during the same period in 2015, 72.0 bcfd in 2014 and 67.3 bcfd in 2013.
Moreover, output has decreased over the past week to just 70.9 bcfd due in part to maintenance work even though prices in the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia were at their highest levels since November 2014.