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US natural gas futures rose on Tuesday with a continued slowdown in output as drillers shut oil wells in shale basins due to the collapse in crude prices. Those oil wells also produce a lot of gas.

Traders noted gas prices rose despite long-term forecasts that government lockdowns to stop the coronavirus spread would reduce domestic demand for gas and cut US liquefied natural gas (LNG) and pipeline exports.

On its last day as the front-month, gas futures for May delivery on the New York Mercantile Exchange rose 3.6 cents, or 2.0%, to $1.855 per million British thermal units (mmBtu) at 10:00 a.m. EDT (1400 GMT).

The June contract, which will soon be the front-month, was up about 7 cents to $1.98 per mmBtu.

Looking ahead, gas futures for the balance of 2020 and calendar 2021 were trading even higher than the front-month on expectations demand will jump as the economy snaps back once governments loosen travel and work restrictions.

US crude, meanwhile, remained on track to drop for a fourth week in a row, falling about 60% during that time.

The US Energy Information Administration (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 on new drilling. That would be the first annual production decline since 2016 and the first time output fell for two consecutive years since 2005.

Data provider Refinitiv said gas output in the US Lower 48 states averaged just 92.7 bcfd so far in April, down from an all-time monthly high of 95.3 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. That would be the first annual decline in consumption since 2017 and the first time demand falls for two consecutive years since 2006.

With milder, spring-like weather coming, Refinitiv projected demand in the Lower 48 states, including exports, would slide from an average of 86.7 bcfd this week to 85.1 bcfd next week.

Copyright Reuters, 2020

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