Natural gas prices have fallen 16% since peaking in 13 years earlier this month, reversing part of a surge that raised fears of sky-high heating bills and fuel costs. manufacturing higher at a time when prices are already high.
A warm start to autumn is the cause of the decline. While most of the country has yet to turn on the heat, gas has accumulated in storage facilities faster than expected and reduced a deficit that has raised concerns about winter price spikes and even potential shortages.
Forecasts guiding commodities traders predict that temperatures will remain abnormally high in November. Meanwhile, federal meteorologists said Thursday their climate models predicted a second consecutive winter of above-average temperatures, particularly in the south and east.
“The weather is perfect over much of the country, and perfect weather doesn’t bode well for natural gas demand,” said Tony Scott, vice president of energy analytics at financial data firm FactSet. . “We are rapidly closing the gap on the brevity of the gas market.”
The US Energy Information Administration said Thursday that about a third more than normal gas was added to national inventories last week, the latest in a series of above-average weekly builds. According to EIA data, stocks that ended August below the recent average of 7.7% are now down to 4.2%.
Natural gas futures closed Friday at $ 5.28 per million British thermal units. This is down from the $ 6.312 on Oct. 5, which was the highest closing price since late 2008, before the frackers flooded the market with shale gas.
Despite the recent decline, prices are still heading winter higher than at any time in the past decade. Gas has spent most of the last two winters trading below $ 3.
This summer, some of the hottest temperatures on record caused a lot of gas to burn to generate electricity for air conditioning. Low inventories in Europe and Asia have pushed local prices to record highs and prompted buyers to rush to replenish depleted supplies with shipments of liquefied natural gas or LNG. The higher prices in these markets have prompted US producers to ship as much gas as LNG export terminals can handle.
Analysts describe a scenario – unlikely, but possible – in which very cold weather drains US supplies and prices must rise significantly to bring exported volumes back to the domestic market.
“We’re looking at a range of possibilities between $ 4 and $ 30,” said Luke Nemes, director of energy supply and market intelligence at Transparent Energy, a New Jersey company that negotiates fuel deals. and advises steelmakers and other heavy burners. gas.
For the $ 30 gas to happen, it would take an extended period of freezing weather forcing domestic buyers to outbid LNG buyers. More likely, Mr. Nemes said, is that winter ranges from normal to warm and prices fall towards the $ 4 futures markets are signaling for the spring.
“If this is a normal scenario, I don’t see gasoline at $ 6 in December,” he said.
Write to Ryan Dezember at [email protected]
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Appeared in the print edition of October 23, 2021 under the title “Natural Gas Off 16% From Recent High”.