Natural gas prices in the United States have witnessed a significant drop in the December to March period, resulting in a loss of more than 50% for bulls in the industry. The reason behind the decline was an unusually warm winter that led to a massive inventory of natural gas, which is primarily used for heating. The quarter saw the worst performance, with natural gas falling by 50%. The current price of natural gas for May delivery settled at $2.216 per metric million British thermal units on the New York Mercantile Exchange’s Henry Hub.
WEAKER-THAN-USUAL DEMAND FOR HEATING IMPACTS NATURAL GAS MARKET
The Energy Information Administration (EIA) reported a reading of 1.853 trillion cubic feet of gas in U.S. storage for the week ending March 24. This was due to weaker-than-usual demand for heating during the unusually warm winter season. The current U.S. gas storage is 31% higher than the same time last year and 21% higher than the five-year average for storage.
HOPE FOR OUTSIZED SUMMER DEMAND
Natural gas bulls are hopeful for an outsized summer demand that would lead to higher-than-usual storage draws of the fuel for cooling. Analysts have suggested that a decent supply move downward this summer is needed to balance the market. Without a scorching and long summer, it seems that this might be challenging to achieve.
In conclusion, natural gas prices in the U.S. have witnessed their worst quarterly drop of 50%, leaving bulls in the industry worried about the future. The unusually warm winter season resulted in less demand for heating, leading to an excess gas supply in storage. The path forward for natural gas bulls would be to hope for outsized summer demand that would lead to higher-than-usual storage draws of the fuel for cooling. However, this is dependent on a long and scorching summer, which might be challenging to achieve.
