US natural gas futures lost almost 2 percent on Thursday after the government reported a slightly bigger-than-expected storage draw. The US Energy Information Administration said utilities pulled 25 billion cubic feet of gas from storage during the week ended March 25 after adding 15 bcf in the prior week. That was slightly bigger than analysts' estimates for a 22 bcf draw in a Reuters poll and compared with a withdrawal of 10 bcf a year earlier and a five-year average draw of around 22 bcf.
After rising more than 11 percent over the past four trading days, including the front-month roll to the more-expensive May contract, futures on the New York Mercantile Exchange closed down 3.7 cents at $1.959 per million British thermal units. That pushed the contract out of technically overbought territory. With heating demand running 14 percent below normal for the past five months due to a warmer winter caused by the El Nino weather pattern, analysts expect stockpiles to end March at an all-time high around 2.5 trillion cubic feet. That would top the record high of 2.472 tcf for the end-of-withdrawal-season set in 2012. With so much gas in inventory going into the April-October summer injection season, analysts said prices would have to remain low for the rest of 2016 to prevent supplies from hitting storage limits of 4.3 tcf at the end of October. Gas prices at the Henry Hub benchmark in Louisiana averaged $2.61 in 2015, the lowest since 1999. So far this year, spot prices have averaged $1.96. That is the lowest since 1999 for the first quarter, when gas demand and prices are historically at their highest level for the year. Futures were fetching $2.33 for the balance of 2016.
The low prices in 2016 are expected to pressure producers to reduce output and encourage power generators to keep burning record amounts of gas instead of coal. The power sector burned a record 26.6 billion cubic feet per day in 2015 and was expected to burn 27.3 bcfd this year, according to federal estimates, making gas instead of coal the primary fuel used by the nation's generators for the first year ever.