US natural gas futures on Wednesday edged higher on a projected small decline in production despite forecasts for steady, cooler-than-normal weather expected to keep heating demand low through mid-May. Front-month gas futures rose 3.3 cents, or 1 percent, to settle at $3.228 per million British thermal units. That kept the contract up 28 percent from an eight-month low of $2.522 in February on the possibility prices could spike later this year if stagnant production and rising exports leave inventories unusually low before next winter.

US gas production was projected to ease to 70.5 billion cubic feet per day (bcfd) on Wednesday after averaging 70.7 bcfd over the past week, according to Reuters data. Since the start of the year, output has remained at its lowest in three years, averaging just 70.6 bcfd during the past 30 days. That compared with 72.1 bcfd during the same period a year earlier, 73.6 bcfd in 2015 and 67.8 bcfd in 2014, the data showed.

US exports were expected to reach 7.7 bcfd this week, up almost 30 percent from a year earlier, according to Reuters data. US gas consumption was projected to slide to 67.1 bcfd next week from 71.0 bcfd this week as the weather warms enough to cut heating demand without resulting in much cooling demand, the data showed.

Analysts said utilities likely added a near-normal 61 billion cubic feet of gas into storage during the week ended April 28. That compares with an increase of 68 bcf during the same week a year ago and a five-year average build of 63 bcf for that period. That increase would keep inventories about 15 percent above normal for this time of year. Looking ahead, meteorologists forecast this summer would be hotter than normal, but not quite as hot as last year, sparking expectations power generators will use a little more gas than usual to keep air conditioners humming.

That is so long as gas prices remain cheaper than coal. Increases in gas futures in recent weeks narrowed the premium of coal over gas to its lowest since early April. That coal premium includes the higher cost to transport coal and lower efficiency of coal power plants.

Regardless of whether power generators use more gas or coal this summer, analysts forecast stagnant gas output and higher foreign sales will cause inventories to rise by just 1.6 trillion cubic feet during the April-October injection season, much less than the five-year average of 2.1 tcf. If that forecast proves correct, storage at the end of October would reach just 3.6 tcf, well below the year-earlier record high of 4.0 tcf and the five-year average of 3.9 tcf.

Copyright Reuters, 2017