Tuesday, December 15, 2015
Natural-gas prices dropped to the lowest level since 1999, as concerns about weak demand continued to weigh on the market.
Futures for January delivery settled down 7.2 cents, or 3.8%, on Tuesday at $1.822 a million British thermal units, the lowest settlement since March 24, 1999.
On an inflation-adjusted basis, Tuesday’s settlement price is the second-lowest on record. The inflation-adjusted record low is $1.80/MMBTU, reached in January 1992.
Gas futures have fallen for five consecutive sessions as higher-than-average temperatures show no sign of letting up. Warm weather in the U.S. caused by the El Niño weather phenomenon has sharply limited demand for the heating fuel this year.
About half of U.S. households use natural gas as their primary heating source.
“The potential for early winter is gone,” said Donald Morton, senior vice president at Herbert J. Sims & Co., who runs an energy-trading desk. “They’re talking 65 degrees in New York on Christmas day.…Every day we go is one less day of demand.”
The natural-gas market is oversupplied due to weak demand and continued robust production. Stockpiles stood at 3.88 trillion cubic feet as of Dec. 4, near the record high reached last month and 6.5% above average levels for this time of year. Some traders and analysts say the industry could run out of storage space for gas by mid-2016.
Weather forecasts released Tuesday showed warmer temperatures in the next two weeks than previously forecast.
Analysts say that even if a bout of cold weather arrives, there is ample gas in storage to meet any spike in consumption.
“There’s a lot of negative sentiment out there right now,” said Jim Calhoun, trader at Twin Eagle Resource Management in Houston. “The longer this warm winter goes on, the more bullets we have to shoot at any cold temperatures that come our way.”
What is considered the winter-heating season in the gas market already has begun.
Natural-gas producers have gotten increasingly efficient in recent years as a boom in shale-gas drilling pushed output to record highs and kept prices subdued. Analytics firm Platts Bentek, a unit of McGraw Hill Financial Inc., expects natural-gas production in the lower 48 states to average 72 billion cubic feet a day this year, up more than 4% from 2014.
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