Natural gas prices in the United States experienced a steep drop of 17% to 20% in recent trading following an unexpected turn in weather forecasts. According to the National Oceanic and Atmospheric Administration (NOAA), much of the country will experience above-seasonal-average temperatures in the coming weeks, which will significantly reduce the heating demand.
The market, which a few days ago was under pressure due to severe cold snaps, reacted quickly to the expectation of lower energy consumption, pushing down Henry Hub quotations from over $6.60 per million British thermal units (mmBtu) to just $3.62.
From historic rises to plummets in a matter of days
At the beginning of the year, the polar wave generated by the Fern storm sent prices soaring by more than 100% in just 5 days. The extreme frosts suddenly increased demand and drastically reduced production, also affecting the exports of liquefied natural gas (LNG).
Analysts at ING estimated that deliveries to LNG plants fell by as much as 48% during the peak of the crisis, impacting global flows. Now, with the changing climate scenario, the market has turned completely the other way.
Europe breathes, but stocks remain under pressure
On the other side of the Atlantic, Europe faces a delicate situation, with gas storage levels well below the average of the last 5 years. Recent data indicate that the European Union has 41.13 % of gas in storage, while Germany barely reaches 32.44 %.
The fall in LNG prices offers short-term respite in the European spot market, especially in the run-up to the start of the refueling period. However, uncertainty remains, with the region still exposed to sharp variations in temperature and supply.
Production recovers, but demand outpaces it
BloombergNEF reported that, although gas production in the United States is recovering after the snowstorms, it is still insufficient to meet current demand. The daily production rate stood at 110 billion cubic feet, while demand reached 128.7 billion on the same day.
These mismatches between supply and demand, coupled with climatic and geopolitical factors, keep the market in a highly speculative phase, where every weather change has an immediate effect on natural gas prices.
What’s next for natural gas prices?
With volatility the norm, analysts expect the gas market to continue to react sharply to weather forecasts. The next big unknown will be whether March will bring a new cold front or the pattern of mild temperatures will continue. In either case, both the United States and Europe will need to be prepared to move quickly in an extremely sensitive market.
Source: OilPrice
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