In a twist that mirrors broader market nerves, U.S. natural gas prices are continuing their decline as warmer weather looms on the horizon. This downward move follows a slide that began earlier in the month, sparked by forecasts calling for milder conditions in the coming weeks.
During morning trading in Asia today, the March natural gas futures contract had fallen about 7.4% from Friday, dipping just above $3 per million British thermal units. This marks the lowest level seen since mid-October of the previous year.
Earlier in the year, prices spiked to multi-year highs as a bitter winter gripped much of the United States, driving heating demand higher. Gas-fired generation carried much of the load because wind and solar struggled to meet the surge, pushing prices briefly above $7 per mmBtu as demand surged while storage levels remained ample.
What happened earlier this year highlights a key dynamic: even with abundant gas in storage, cold weather in the U.S. and Europe pushed demand higher and supported price increases. Looking ahead, European demand could keep upward pressure on U.S. gas prices, given that EU storage levels are running low and will need replenishment later in the year. In the near term, however, easing heating demand as spring approaches is likely to weigh on prices.
As of Friday, the European Union’s stored gas stood at 33.97% of capacity, according to Gas Infrastructure Europe, with Germany’s storage at 23.95% and the Netherlands at 15.57%, underscoring tighter European inventories ahead.
The U.S. National Oceanic and Atmospheric Administration projects that warmer-than-average weather will sweep much of the country over the next two weeks, particularly in the central and southern states. If realized, this would dampen electricity and gas demand. Yet weather forecasts can be wrong—an imperfect art—so a reversal in prices remains possible if conditions turn cooler than anticipated.
By Irina Slav for Oilprice.com
