US natural gas futures rose to a 10-week high on Thursday as output slows because drillers are shutting oil wells in shale basins due to the recent collapse in crude prices. Those oil wells also produce a lot of gas.
That price increase came despite a report showing an expected storage build last week, and forecasts that government lockdowns to fight the coronavirus will cut domestic demand and exports.
The US Energy Information Administration (EIA) said utilities injected 70 billion cubic feet (bcf) of gas into storage during the week ended April 24.
That was in line with the 69-bcf build analysts estimated in a Reuters poll and compares with an increase of 114 bcf during the same week last year and a five-year (2015-19) average build of 74 bcf for the period.
The increase for the week of April 24 boosted stockpiles to 2.210 trillion cubic feet (tcf), 19.5% above the five-year average of 1.850 tcf for this time of year.
Front-month gas futures for June delivery on the New York Mercantile Exchange rose 8.0 cents, or 4.3%, to settle at $1.949 per million British thermal units, their highest since February 19.
For the month, the contract gained about 18% after falling around 37% over the prior five months. That is the biggest increase in a month since November 2018.
Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading higher than the front-month on expectations demand will jump once governments loosen travel and work restrictions.
The EIA projected gas production will fall to an annual average of 91.7 billion cubic feet per day (bcfd) in 2020 and 87.5 bcfd in 2021 from a record 92.2 bcfd in 2019 as drillers shut wells and cut spending.
Data provider Refinitiv said gas output in the US Lower 48 states averaged 92.7 bcfd so far in April, down from 93.2 bcfd in March and an all-time monthly high of 95.4 bcfd in November.
EIA projected coronavirus lockdowns will cut US gas use - not including exports - to an average of 83.8 bcfd in 2020 and 81.2 bcfd in 2021 from a record 85.0 bcfd in 2019.