U.S. natgas futures rise over 4% for second day on cooler forecasts

(Reuters) - U.S. natural gas futures rose over 4% for a second day in a row on Monday on forecasts for cooler weather and higher heating demand next week than previously expected.

Front-month gas futures for May delivery on the New York Mercantile Exchange rose 7.5 cents, or 4.6%, to $1.696 per million British thermal units at 9:40 a.m. EDT (1340 GMT). Despite the increase, gas was still just about 15 cents over the $1.552 settle on April 2, its lowest close since August 1995.

Even before the coronavirus started to cut global economic growth and energy demand, gas was already trading near its lowest in years as record production and months of mild winter weather enabled utilities to leave more fuel in storage, making shortages and price spikes unlikely.

Gas futures, however, are trading much higher for the balance of 2020 and calendar 2021 on expectations demand will rise in coming months after governments loosen travel and work restrictions once the spread of coronavirus slows. Calendar 2021 has traded at a premium over 2022 for 20 days and over 2025 for 10 days.

Prices are also trading much higher in the forward spot market. At the Waha hub in the Permian basin in West Texas, where next-day prices were negative at the start of March, forwards <0#OTGBLFIX:> were averaging $1.17 per mmBtu for the balance of the year and $1.90 for calendar 2021. That compares with an average of 52 cents so far this year, 91 cents in 2019 and a five-year (2014-2018) average of $2.80.

As forward prices rise, speculators have been cutting their short positions on the NYMEX and Intercontinental Exchange. Last week, they cut their net shorts for a fifth week in a row to their lowest since May 2019, according to data from the Commodity Futures Trading Commission.

With cooler weather coming, data provider Refinitiv projected gas demand in the U.S. Lower 48 states, including exports, will rise from an average of 94.0 billion cubic feet per day (bcfd) this week to 100.3 bcfd next week. That compares with Refinitiv’s forecasts on Friday of 94.6 bcfd this week and 97.9 bcfd next week.

The amount of gas flowing to U.S. LNG export plants edged up to 8.2 bcfd on Sunday from a two-week low of 8.0 bcfd on Saturday, according to Refinitiv. That compares with an average of 8.9 bcfd last week due to a reduction at Cheniere Energy Inc’s Sabine Pass export plant in Louisiana for pipeline work.

In the spot market, mild weather this week cut next-day power prices at the SP-15 hub in Southern California to a fresh record low for a second day in a row, while gas at the U.S. Henry Hub benchmark in Louisiana fell to its lowest since March 2016 for a second day in a row.

Reporting by Scott DiSavino; Editing by Nick Zieminski