Natural gas futures slid nearly 3 percent by midday on Tuesday, bouncing just above their lowest mark in 10 years, as mild late-winter weather curbed demand and left inventories swollen.
The spot contract has tumbled nearly 16 percent so far this month, and few traders expect much upside in the near term, with winter demand fading, production at or near all-time highs and inventories likely to end the season at a record high.
"Barring another announcement of a production cut, the market is going to continue to tumble. You cannot rule out a $1 price handle. We have no weather demand to speak of in the next two weeks in the major consuming regions," said Gene McGillian, analyst at Tradition Energy in Stamford Connecticut.
As of 12:10 p.m. EDT (1610 GMT), front-month April natural gas futures on the New York Mercantile Exchange were at $2.221 per million British thermal units, down 5.7 cents, or nearly 3 percent, after sliding to $2.204, a contract low and the lowest price for a front month since February 2002.
Other months were lower as well, with the May contract down about 5 cents at $2.321, and summer months likewise 5 cents lower. The first five contract months also slid to fresh lows in electronic trade.
In the cash market, gas bound for the NYMEX delivery point Henry Hub in Louisiana was heard at $2.15, down 2 cents from Monday's average of $2.17 and at its lowest mark since September 2009.
Late Hub cash deals were done at about a 9-cent discount to the front month, little changed from deals done early Monday at about a 12-cent discount.
Gas on the Transco pipeline at the New York City gate was heard near $2.26, down 3 cents from Monday and also at its lowest price since September 2009.
Temperatures in key gas-consuming cities New York and Chicago were expected to climb to the low to mid-70s degrees Fahrenheit (21-24 degrees Celsius) by midweek, according to the Weather Channel's weather.com. Traders said the mild weather has curbed any late-winter heating demand across both regions.
STORAGE OVERHANG A PROBLEM FOR PRICES
Last week's gas storage report from the Energy Information Administration showed total domestic inventories fell to 2.433 trillion cubic feet, still at record highs for this time of year, and more than 700 bcf, or 40 percent, above both last year and the five-year average level.
(Storage graphic: link.reuters.com/mup44s)
Early withdrawal estimates for this week's EIA report range from 47 bcf to 66 bcf versus last year's drop of 60 bcf and the five-year average decline of 79 bcf for that week.
With no extreme cold on the horizon, stocks are likely to end winter at an all-time high of 2.2 tcf, well above the previous record of 2.148 tcf set in 1983.
The cushion could also spell trouble for prices late in the summer stock-building season if storage caverns fill to capacity and force more supply into the market.
OUTAGES, CUTS COULD HELP TIGHTEN MARKET
Nuclear plant outages were running at about 19,600 megawatts, or 20 percent, up from 14,700 MW out a year ago and a five-year outage rate of about 14,900 MW. [ID:nL4E8ED66K]
Traders said the outages could add more than 1 bcf to daily gas demand.
And planned output cuts by producers could trim 1 bcf per day or more from flowing supply.
Relatively cheap gas has also drawn more industrial use and prompted additional utility fuel switching away from more expensive coal.
But with production still running at or near all-time highs, few traders expect much upside in prices in the near term.
The National Weather Service six to 10-day outlook issued on Monday again called for above or much-above-normal readings for about the eastern two-thirds of the nation and below-normal readings only in the West.
Baker Hughes drilling data last week showed the gas-directed rig count fell for a ninth straight week to a 32-month low of 670.
The steady drop in gas-directed drilling has stirred talk that low prices might finally slow output.
(Rig graphic: r.reuters.com/dyb62s)
Analysts agree it can take months for a slowdown in drilling to translate into lower production, noting the producer shift in spending to higher-value oil and gas liquids plays still produces plenty of associated gas that partly offsets any reductions in dry gas output.
A recent Bernstein report said the gas-directed rig count would have to drop to about 600 before it would be comfortable forecasting flat to falling production.
Most analysts, noting it will be difficult to balance the gas market without serious production cuts, do not expect any major slowdown in gas output until late this year.
(Reporting by Eileen Houlihan and Edward McAllister; Editing by John Picinich and Marguerita Choy)