U.S. natural gas futures slid about 4 cents early Monday, with the front month contract tumbling to a 10-year spot chart low, as mild spring weather and record high supplies continued to pressure prices.
Front-month May natural gas futures on the New York Mercantile Exchange were at $2.092 per million British thermal units in early activity, down 3.4 cents, or nearly 2 percent, after sliding to $2.069 in electronic trade, the lowest price for a front month since February 2002.
Several bearish reports late last week, including government data on inventories and production and industry data on drilling, combined to pound gas prices down 19 percent in March, their biggest monthly drop since August 2010.
The front contract also shed 29 percent in January to March in the biggest quarterly decline in two years.
PRODUCTION BIG PROBLEM FOR BULLS
Baker Hughes data on Friday showed the gas-directed rig count rose by six to 658 after hitting a 10-year low of 652 the prior week. It was the first gain in the gas rig count in 12 weeks.
The steady drop in dry gas drilling this year, the gas count is still down nearly 30 percent since peaking at 936 in mid-October, had stirred expectations that low gas prices would finally force producers to curb gas output and tighten supplies.
But the drop has yet to be reflected in pipeline flows, which are still estimated to be at or near record high levels, primarily due to rising output from shale.
U.S. Energy Information Administration production data last week offered little hope for the bulls, with January gross gas output climbing to a record of 72.85 billion cubic feet per day, eclipsing the previous peak of 72.68 bcfd in November.
The slight drop the agency reported for December, the first measurable decline since well freeze offs curbed output in January and February 2011, had raised expectations that producers might finally be curtailing output.
Some analysts say the gas-directed rig count may have to drop below 600 to reduce flowing supplies significantly, noting the producer shift to higher-value oil and gas liquids plays still produces plenty of associated gas that partly offsets any reductions in pure dry gas output.
Most analysts do not expect any major slowdown in gas output until later this year.
EIA data on Thursday showed total gas inventories rose by 57 billion cubic feet to 2.437 trillion cubic feet.
The build, the second in 2012 and the largest ever for March, drove stocks further into record territory for this time of year and sharply widened the already huge surpluses to year-ago and the five-year average.
Utilities typically build inventories from April through October to help meet peak winter heating needs, but builds this year started about two weeks earlier than usual, and storage is set to finish the month near 2.5 tcf, about 60 percent above normal and easily above the previous March 31 record of 2.148 tcf set in 1983.
Early injection estimates for this week's EIA report range from 8 bcf to 49 bcf versus last year's adjusted draw of 29 bcf and the five-year average build for that week of 8 bcf.
The inventory surplus will provide a hefty cushion to meet any spikes in demand or storm-related disruptions in supply this year. It is expected to grow further in coming weeks, at least until stronger air conditioning demand slows builds.