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Not all that glitters is gold. U.S. natural gas futures may have settled just above the $2 level on Tuesday, but that doesn’t distract from the fact that it marked a fresh nine-month low, indicative of the tumultuous path ahead. Warm weather forecasts are pointing to lower near-term demand than previously expected—an unwelcome bombshell that incites concerns about inventory surpluses.
Traders remain wary, as they report an upsurge in production. Gas wells continue to return to service after the battering from last month’s extreme cold. Compounding the bleak outlook, LNG feedgas remains low, largely due to an ongoing unit outage at Freeport LNG’s export plant in Texas.
“March ’24 prices tested $2 several times in recent sessions but are so far holding above it today, albeit barely,” observed NatGasWeather.com. “Clearly, a cold U.S. pattern will be required for much of the second half of February if a sustained weather rally is to be expected.”
Front-month Nymex natural gas futures (NG1:COM) for March delivery settled -3.5% at $2.009/MMBtu, concluding at its lowest since last April 13.
Rising price volatility has recently spiked interest in gas trading. Open interest in Nymex futures surged to nearly 1.5M contracts on February 2, marking the most substantial figures since February 2020, and has remained robust for the fourth consecutive day.
The U.S. Energy Information Administration’s Short Term Energy Outlook foresees record-high U.S. natural gas production and demand in 2024. Domestic dry gas production is on an upward trajectory, projected to rise to 104.37B cf/day this year and 106.46B cf/day in 2025 from a record 103.75B cf/day in 2023. Simultaneously, gas consumption is expected to swell from a record 88.96B cf/day in 2023 to 90.64B cf/day in 2024, subsequently easing to 89.55B cf/day next year.
The EIA’s projections also indicate an unsettling forecast regarding storage. It anticipates storage to end the November-March winter heating season at 1,910 Bcf, a disquieting 15% above the five-year average.
While there are no warning lights yet for this crisis, the outlook for the natural gas market is as volatile as ever, seeping with uncertainty.
