Adds latest prices

By Scott DiSavino

Aug 21 (Reuters) -U.S. natural gas futures eased about 1%on Wednesday as the tremendous oversupply of gas still in storage offset a bullish decline in output in recent days and forecasts for more hot weather over the next two weeks than previously expected.

That heat should boost the amount of gas power generators burn to keep air conditioners humming next week.

Front-month gas futures NGc1 for September delivery on the New York Mercantile Exchange fell 2.1 cents, or 1.0%, to settle at $2.177 per million British thermal units (mmBtu).

The tremendous oversupply of gas in storage has kept a lid on gas prices all year.

There was still about 12% more gas in storage than normal for this time of year even though weekly builds, including last week's rare decline in August, have been smaller than normal in 13 of the past 14 weeks. EIA/GAS NGAS/POLL

The storage decline during the week ended Aug. 9 was the first weekly withdrawal in August since 2006.

In Texas, power demand in the Electric Reliability Council of Texas (ERCOT) grid peaked at a preliminary record of 85,559 megawatts (MW) on Tuesday, topping the prior peak of 85,508 MW set on Aug. 10 2023.

Real-time power prices in ERCOT topped $4,000/MW for three 15-minute intervals around 8 p.m. local time on Tuesday, peaking at $4,853 per MW, according to the ERCOT website. Day-ahead prices, where most firms sell energy, however, peaked at a much lower $123/MW-hour around 8 p.m.

SUPPLY AND DEMAND

Producers increase and decrease output in reaction to prices, but it usually takes a few months for changes in drilling activity to show up in the production data.

Average monthly spot prices at the U.S. Henry Hub benchmark NG-W-HH-SNL in Louisiana hit a 12-month high of $3.18 per mmBtu in January before dropping to a 44-month low of $1.72 in February and a 32-year low of $1.49 in March, according to Reuters and federal energy data.

In reaction to that price plunge, producers cut average monthly output from 106.0 billion cubic feet per day (bcfd) in February to 102.7 bcfd in March, 101.5 bcfd in April and a 17-month low of 101.3 bcfd in May, according to federal energy data.

Winter storms at the start of the year caused output to fall from a record 106.3 bcfd in December to 103.6 bcfd in January.

As monthly spot Henry Hub prices increased to $1.60 per mmBtu in April, $2.12 in May and $2.54 in June, some producers, including EQT EQT.N and Chesapeake Energy CHK.O, started to increase drilling activities, boosting output to 101.0 bcfd in June and 103.4 bcfd in July.

But with average spot Henry Hub prices back down to $2.08 per mmBtu in July and $2.01 so far in August, analysts said output would likely decline as some producers reduce drilling activities again.

Financial firm LSEG said gas output in the U.S. Lower 48 states has slid to an average of 102.3 bcfd so far in August, down from 103.4 bcfd in July.

On a daily basis, LSEG said output was on track to drop by 1.3 bcfd over the past two days to a preliminary nine-week low of 100.6 bcfd on Wednesday. Analysts, however, noted that preliminary data is often revised later in the day.

With hotter weather coming, LSEG forecast average gas demand in the Lower 48, including exports, will rise from 103.9 bcfd this week to 105.1 bcfd next week. Those forecasts were higher than LSEG's outlook on Tuesday.

Reporting by Scott DiSavino; editing by Jonathan Oatis

For gas data on LSEG's Eikon type ENERGY in the search bar and then go to the GAS drop down and the NORTH AMERICA drop down.

For Interactive Map, type 'Interactive Map' in the box at upper left of the Eikon terminal

For graphics on Baker Hughes rig counts, see: http://graphics.thomsonreuters.com/15/rigcount/index.html

For next-day SNL U.S. gas prices, see: 0#SNL-NG

For next-day SNL U.S. power prices, see: 0#SNL-PWR

For U.S. natgas price and storage polls, see: NGAS/POLL

For U.S. nuclear power outages, see: NUKE/

For U.S. Northwest hydro power report, see: NWRFC

For U.S./Canada natural gas rig count vs Henry Hub futures price, see: http://tmsnrt.rs/2eT9k44

For the U.S. natural gas speed guide, see: USGAS

For the U.S. power speed guide, see: USPOWER

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NYMEX Henry Hub options and futures combined 0#3CFTC023651

NYMEX Henry Hub futures only 0#1CFTC023651

ICE Henry Hub options and futures combined 0#3CFTC023391

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