Why Are U.S. Natural Gas Futures So Low?
Natural gas futures are as volatile as the raw commodity when extracted from the earth’s crust. Since 1990, NYMEX natural gas futures for delivery at the Henry Hub pipeline in Erath, Louisiana, have experienced periodic explosive and implosive price moves.
The U.S. natural gas futures arena had been in a bearish trend of lower highs and lower lows from 2005, when the price reached a record $15.78 high, through June 2020, when it traded to a quarter-of-a-century $1.44 low. It took a little over two years for the price to explode to the highest price since 2008 but six months to fall below $2.
On February 7, 2023, I highlighted that natural gas had no inventory or supply concerns on Barchart, with the price of nearby NYMEX futures sitting around the $2.50 per MMBtu level. In that article, I pointed out natural gas stocks were sitting 9.4% above the previous year and 6.7% above the five-year average as of February 2.
In late March 2023, the inventory situation worsened for anyone bullish on the energy commodity. However, natural gas is at a price that may not have too much more downside.
The latest Energy Information Administration natural gas stockpile data shows that natural gas inventories have exploded to the highest level in years.
The chart highlights that natural gas in storage across the U.S. stood at 1.9 trillion cubic feet for the week ending on March 17, 2023. The stocks were 36.1% higher than in mid-March 2022 and 22.7% over the five-year average.
The 2023 injection season begins soon
Typically, the withdrawal season in natural gas ends, and the injection season starts in late March annually. Over the past years, natural gas stockpiles were at the following levels at the end of the peak withdrawal season:
2022- 1.382 trillion cubic feet
2021- 1.750 trillion cubic feet
2020- 1.986 trillion cubic feet
2019- 1.107 trillion cubic feet
At the 1.900 tcf level on March 17, natural gas stocks were below the 2020 level but will likely end the 2023 withdrawal season above the levels in 2021, 2022, and 2019.
As of the week ending on March 24, 2023, Baker Hughes reported that 162 natural gas rigs were operating in the United States, 25 rigs above the level at the same time in 2022. The bottom line is plenty of natural gas is in storage to meet requirements, and production running at a higher level than last year, with 25 more rigs extracting natural gas from the earth’s crust in March 2023 than in March 2022, which remains bearish.
Natural gas is inexpensive, which does not mean it will not get cheaper
The NYMEX natural gas futures chart since the August high at just over the $10 per MMBtu level is ugly.
The chart shows the steady plunge from the August 2022 $10.028 high to the $1.967 per MMBtu low in February 2023. At the $2 level on the continuous futures contract on March 29, natural gas remains near the recent low, and the trend remains bearish. The trend is always your best friend, and while it remains bearish, natural gas for delivery at the Henry Hub pipeline in Erath, Louisiana is at $2 per MMBtu, meaning after a nearly $8 drop over the past seven months, a continuation could threaten the twenty-five year low, the all-time bottom since 1990, and even zero, a level we saw breached in the nearby NYMEX crude oil futures in April 2020.
Natural gas may be cheap at $2 per MMBtu on the nearby April contract on March 29, but a continuation of the price decline is not out of the question.
Continue reading the original article here.
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