Natural gas prices have fallen 7% as a result of high storage levels. Despite forecasts of cold weather in some areas, the market is barely affected due to the intimidating storage levels of the fuel. The front-month April gas contract on the New York Mercantile Exchange’s Henry Hub settled at $2.338 per mmBtu, down 17.6 cents or 7%. The price drop comes after a mostly warm winter in 2022/23, which resulted in considerably less heating demand in the United States, leaving more gas in storage than initially thought.
Warm Winter Affects Natural Gas Demand
The warm winter season resulted in reduced heating demand in the US compared to the norm, leaving a surplus of natural gas in storage. Responding to the warmth and lackluster storage draws, gas prices plunged from a 14-year high of $10 per mmBtu in August, reaching $7 in December before trading mostly at mid-$2 levels over the past month. Gas in storage was reported to be at a total of 1.972 tcf, up 36% from the year-ago level of 1.451 tcf and 24% higher than the five-year average of 1.594 tcf, according to the Energy Information Administration (EIA).
Weekly Drawdowns Have Little Effect on Gas Prices
Despite weekly drawdowns from storage, analysts doubt that the near-term draws of gas will have a measurable effect on storage to push prices up. The most recent drawdown was just 58 bcf from storage compared to forecasts for a 62 bcf deficit and the previous week’s drop of 84 bcf. Analysts at Houston-based energy markets consultancy Gelber & Associates have noted that with around three weeks left in the withdrawal season and current inventories of 1.97 tcf, the remaining withdrawals will have to average around 60 bcf, much higher than expectations.
Weather Forecasts and Market Outlook
While weather forecasts as of Friday morning were calling for heavy snow across portions of the central plains and upper US Midwest, Gelber & Associates said that a winter storm was likely to linger through Friday and Saturday but not expected to cause disruptions to natural gas production. Analysts at Gelber & Associates added that it seems the market may have a hard time getting down to 1.8 Tcf carry out, even with some cold.
Natural gas prices have fallen 7% due to high storage levels. The warm winter in 2022/23 resulted in considerably less heating demand in the US compared to the norm, leaving more gas in storage than initially thought. Despite weekly drawdowns from storage, analysts doubt that the near-term draws of gas will have a measurable effect on storage to push prices up. While there are weather forecasts calling for heavy snow in some areas, a winter storm is unlikely to cause disruptions to natural gas production. As the winter season comes to an end, it remains to be seen whether gas prices will be affected by seasonal changes or other market factors.
