US Shale Gas Swamps Market

(Bloomberg) -- Natural gas futures tumbled to the lowest in almost three years as U.S. shale output swamps the market amid mild spring weather, soothing concern about a potential supply crunch next winter.

A seasonal lull in heating and cooling demand, coupled with surging production, is accelerating gains in stockpiles of the fuel in underground caverns and aquifers. While inventories are more than 30 percent below normal, they’re poised to refill quickly: Analysts predict that stored supplies probably rose by more than quadruple the average last week.

Though gas demand has climbed as new U.S. export terminals send super-chilled cargoes to buyers as far away as Japan, soaring production continues to dog the market. In the Permian Basin of West Texas and New Mexico, where the fuel is pumped as a byproduct of oil exploration, gas supply has overwhelmed the capacity of pipelines to carry it out of the region, pushing prices below zero on some days.

‘‘This is a very bad development here’’ for gas futures, Bob Yawger, director of the futures division at Mizuho Securities USA, said in a phone interview. ‘‘This is below the multi-year low and we are basically in no man’s land right now.’’

Gas for May delivery fell 4.8 cents to $2.524 per million British thermal units at 11:14 a.m. on the New York Mercantile Exchange after earlier sliding to $2.517, the lowest since June 9, 2016. Prices are down 14 percent this year.

Stockpiles probably rose by 88 billion cubic feet last week, based on analysts’ estimates. That compares with a five-year average gain of 21 billion for the period, U.S. Energy Information Administration data show. Production, meanwhile, is at the highest for the time of year in Bloomberg data going back to 2014.

‘‘We have just a lot of gas production in this country,’’ Yawger said. ‘‘Storage is in fact pretty far behind last year, but you can have as much gas as you want and as soon as you want it. That’s what’s killing the market.’’

To contact the reporter on this story: Caleb Mutua in New York at dmutua@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Christine Buurma, Steven Frank

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