US natural gas futures slid on Tuesday to end down more than 2 percent, after climbing in early trade to a four-month high and then reversing course after forecasters called for weaker demand and stronger production. Front-month gas futures on the New York Mercantile Exchange closed down 6.2 cents at $2.948 per million British thermal units. That decline pushed the front-month out of overbought territory for the first time in three days.
It also pushed the premium of the front-month over the coal contract down from over $1.10 per mmBtu to just over $1. Traders noted a gas premium of $1.50 over coal makes it cheaper to burn coal instead of gas at many power plants. Some of the most active options were the $2 October puts and the $1.75 August 2015 puts. Thomson Reuters Analytics said the Global Forecast System weather model for the lower 48 US states switched from above-normal to near-normal temperature expectations for the next two weeks, with 101 population-weighted cooling degree days.
That compared with Monday's forecast of 96 CDDs and a norm of 91 CDDs for this time of year. Prices fell as the forecast for air-conditioning demand in the lower 48 states over the next two weeks was lowered to 53.5 billion cubic feet per day from an earlier forecast of 53.7 bcfd, according to Thomson Reuters Analytics. The forecast for production in the lower 48 was lifted to 72.0 bcfd from an earlier forecast of 71.6 bcfd, which would have been the lowest since early January. That compared with 68.6 bcfd a year earlier and a record high of 74.5 bcfd in December.
Net imports from Canada were expected to rise to 6.0 bcfd from 5.9 bcfd on Monday, while exports to Mexico were expected to edge up to 2.6 bcfd, from 2.4 bcfd on Monday, according to Thomson Reuters Analytics. In early estimates, analysts forecast utilities added 100 billion cubic feet of gas into storage during the week ended May 15. That compared with builds of 111 bcf the previous week, 106 bcf a year earlier and a five-year average increase of 89 bcf.

Copyright Reuters, 2015

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