US natgas futures on track to drop to 25-year low as stockpiles fill fast

US natural gas futures neared a 25-year low on Thursday as demand destruction from the coronavirus left the world awash in gas that utilities have been forced to squeeze into storage caverns that are expected to be full by the end of the summer season.

Analysts said US utilities likely injected a bigger-than-normal 106 billion cubic feet (bcf) of gas into storage during the week ended June 19. That compares with an increase of 103 bcf during the same week last year and a five-year (2015-19) average build of 73 bcf for the period.

If correct, the increase would bring stockpiles to 2.998 trillion cubic feet (tcf), 17.8% above the five-year average of 2.546 tcf for this time of year. By the end of the injection season in October, analysts expect US inventories will reach a record high near 4.1 tcf.

On its second to last day as the front-month, gas futures for July delivery fell 4.7 cents, or 2.9%, to $1.550 per million British thermal units (mmBtu) at 8:17 a.m. EDT (1217 GMT). If the contract closes at that level it would be its lowest settle since August 1995.

The August future, which will soon be the front-month was down about 3 cents to $1.63 per mmBtu.

Stockpiles are filling despite a drop in output this year. Refinitiv said production in the Lower 48 US states has averaged 87.5 billion cubic feet per day (bcfd) in June, down from a 16-month low of 87.9 bcfd in May.

Liquefied natural gas exports, meanwhile, were on track to rise to a two-week high of 4.9 bcfd on Thursday as flows to the Cameron plant in Louisiana hit a record high. That is up from a 14-month low of 3.6 bcfd last week.