Natural gas continues southwards, hitting mid-$2 levels

© Reuters.

By Barani Krishnan

Investing.com -- Natural gas futures continued their journey southwards Wednesday as bears retained their chokehold on the market despite expectations that storage of the heating fuel had fallen more than 100 bcf, or billion cubic feet, last week in a chilly week that bucked a mostly warm winter season.

The front-month March gas contract on the New York Mercantile Exchange’s Henry Hub settled down 21.6 cents, or 8%, at $2.468 per mmBtu, or million metric British thermal units.

March gas earlier hit a 21-month bottom at $2.465. The last time a front-month gas contract on the Henry Hub went lower than that was on April 7, 2021, when it struck an intraday bottom of $2.458.

Gas futures have lost over 20% week-to-date, extending to more than 60% their plunge over the past two months.

The meltdown in gas pricing came after an unusually warm start to the 2022/23 winter that led to a collapse in demand for heating fuels. Prior to the selloff, the Henry Hub’s front-month hit 14-year highs of $10 per mmBtu in August, and even traded as high as $7 in December.

Due to weak consumption, U.S. gas in storage stood at 2.729 tcf, or trillion cubic feet, at the close of the week to Jan. 20, up 4% from the year-ago level of 2.622 tcf, according to a weekly update provided by the Energy Information Administration, or EIA. The agency provides inventory updates every Thursday, with analysts expecting a drawdown of 146 bcf for the week to Jan. 27 versus the 91-bcf deficit in the prior week.

“Gas prices are cascading on the perception that whatever cold we have from hereon won’t be sufficient to make an impressive dent on storage,” said John Kilduff, partner at New York energy hedge fund Again Capital. “We could finish winter with storage still about 2-3% higher than year-ago levels as we seem to have bumper production of dry gas as well now.”

Dry gas production had lately hovered near 100 bcf per day or more, said analysts at Gelber & Associates, a Houston-based consultancy on energy trading, said this week.

Forecasts for impending chills also weren’t as supportive as they used to be, analysts at the consultancy said.

In Tuesday’s reading, the major weather forecast models, including the U.S-based Global Forecast System and the European ECMWF models, showed that the looming cold weather event would be limited to the portions of the northern U.S. tier of the nation, without meaningfully impacting the southern Plains and the Southeast region of the country.