Natural gas futures showed a slight increase on Thursday after the US government announced a larger-than-expected supply cutoff.
Domestic natural gas reserves fell 59 billion cubic feet in the week ending November 26, according to the US Energy Information Administration (EIA). This is slightly more than the average estimate of 57 billion cubic feet. The EIA announced last week that it had cut off supplies of 21 billion cubic feet.
Overall, US natural gas reserves are 3.564 trillion cubic feet, down 375 billion cubic feet from the same period last year. They are also 86 billion cubic feet below the five-year average of 3.65 trillion cubic feet.
Natural gas futures for January rose $ 0.013, or 0.31 percent, to $ 4.271 per million British thermal units (BTU) on the New York Mercantile on Thursday, immediately after the release of the report. Natural gas is preparing for a weekly decline of about 16 percent, but energy prices are still up about 68 percent since the beginning of the year.
Despite the moderate increase in natural gas prices on Thursday, market analysts note that the intense sell-off has resulted in huge losses for speculators.
In recent sessions, the focus has been on the widow spread between March and April futures, after falling to a 20-month low amid changing weather forecasts. This market metric underscores how limited stock will be at the end of winter.
Moreover, investor premiums on next year’s summer contracts have dropped significantly. As market strategists note, traders are reviewing 2023 supply and supply and demand prospects.
Recession caused by weather conditions
December is expected to be warmer than average in most parts of the United States.
This month’s forecast from The Weather Company shows temperatures to be above average, from Florida to the Mid Atlantic and West Coast. The only places predicted below average temperatures may be closer to the Canadian border, including in western Washington, the northern Great Lakes, and New England.
Meteorologists say the soft December forecast is due to La Niña and a strong polar vortex.
If these conditions continue in the United States, industry experts predict warmer weather could continue into winter. It was this belief that drove the sell-off in natural gas markets.
“This is a purely weather recession … [forecasts] currently indicates average or above the US average. This, in turn, reduced the expected number of warm days, which had a significant impact on Henry Hub prices, ”Campbell Faulkner, senior vice president and chief analyst at OTC Global Holdings, told CNBC.
Overseas weather conditions are signaling warmer-than-normal temperatures in Europe, although meteorologists are tracking colder patterns forming in late December.
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This summer, it looked like the United States would run short during the colder months. However, as the fall months were warmer than expected, stocks were replenished, said John Kilduff, partner at Again Capital.
“The storage level is now in line with the five-year average. The relative warmth last week, this week and in the mid-December forecast just undermined the bullish business, ”he said.
Emily McClain, North American gas analyst at Rystad Energy, notes that the latest data suggests “bearish weeks ahead.”
“Coming weather forecasts assume bearish weeks ahead and warehouse stocks are back to normal (just 1.6% below the 5-year average),” she said in a note. “The combined effect has led to further declines in spot and futures prices.”
However, liquefied natural gas (LNG) exports are projected to remain close to the 10 billion cubic feet per day range through the end of 2022 and into the winter season, “so we are likely to see prices remain high and in the range USD 4.00–5.00 per MMBtu. McClain added.
Data compiled by commodities consultant Kpler shows US LNG exports last month totaled 6.1 million tons, up from 5.96 million in October. This is the maximum since May.
Demand for heating is growing in the European market and concerns about supply shortages have not dissipated. Commodity experts continue to anticipate gas shortages in Europe, which could lead to seasonal high prices for much of 2022.
“Concerns about low gas storage levels in Europe have not abated, and this is likely to be an issue over the winter as heating demand continues to grow,” said Warren Patterson, head of product strategy at ING.
“These concerns about the restrictions should mean that prices will remain high but volatile until the end of this year and early next year. We expect gas prices in Europe to begin to decline as soon as we overcome the peak of winter demand, although given that Europe may end the winter with historically low reserves, we still believe that prices will remain seasonally high for much of 2022. of the year “.
Europe was able to receive more LNG cargo. Kpler’s numbers show that Europe imported 6.29 million tons in November, up from 5.96 million in October. It was also the largest amount since April.
While crude oil appears to be driven by concerns over the Omicron option, natural gas prices are hinged on current supply and demand fundamentals.