U.S. natural gas prices are trying to recover after hitting their lowest levels since June 2021 last week. The reason behind the implosion in the market is partially due to soaring domestic production and high storage levels. The markets and traders were betting on high demand in Europe with their prices $30 to $40 per MM BTU higher than the U.S. However, that did not materialize and took the air out of the market.
John Wenzel, Sr. Risk Mangement Consultant with StoneX says, “The trouble in natural gas started with Freeport LNG plant going down reducing almost 2 billion cubic feet per day of natural gas that was going to be liquefied anyway but the real kicker was in December, January here we’ve had unseasonably warm weather in Europe and now Europe’s setting with really full.”
That has resulted in U.S. cargoes booked for Europe being cancelled. Add on top of that the recent pullback in the U.S. dollar has also depressed prices. Wenzel says funds also pressured LNG prices going short nearly 90,000 contracts. The market rebounded on Monday and Wenzel thinks it’s a good time for end users to line up some of their supply if they can. Wenzel says, “One of the things that farmers will run into is drying contracts some of those might not be set, but for your larger end users who can look at getting some deals on natural gas there’s definitely pricing there that hasn’t been here for over a year. So, we would want people to take a look at it.” One of the end users that may be buying Nat gas at these lower price levels are fertilizer producers and so the hope is that will make some products cheaper this spring.
Natural gas futures rebounded more than 9% on Monday, in anticipation of higher heating demand due to cold spell forecasts. However, the Energy Information Administration says natural gas prices are expected to grow more than 2-percent this year to a record daily average of 100.3 billion cubic feet. So hopefully that will moderate prices in 2023.
