Natural-gas futures saw a hefty decline in January, posting their worst monthly performance in more than two decades, as warmer-than-expected winter weather kept demand at bay, easing concerns about tight supplies.
“Weather forecasts on both sides of the Atlantic were so warm that the supply-demand gas balances both flipped to oversupplied in the short term, pushing down prices heavily,” Joe DeLaura, energy strategist at Rabobank, told MarketWatch.
On Tuesday, front-month March natural-gas futures settled at $2.684 per million British thermal units on the New York Mercantile Exchange, up 0.3%, for the session. Based on the front month, however, prices fell 40% in January — the largest monthly percentage drop since January 2001, according to Dow Jones Market Data.
Jay Hatfield, chief executive officer at Infrastructure Capital Advisors, said the U.S. is “having one of the warmest winters in the last 100 years with temperatures 4.5 degrees higher than average.”
In addition, a fire at Freeport’s LNG facility in June of last year knocked out 20% of the U.S. export capacity of liquefied natural gas, which significantly lowers the demand for U.S. natural gas, he said. Freeport has been taking steps to restart the facility.
Hatfield also pointed out that natural gas is “almost always produced as a by-product of drilling for oil, and oil prices have held up well during the warm winter — causing production of natural gas to remain high as oil prices drive the economics of incremental drilling.”
In the U.S., natural-gas inventories in storage stood at 2.729 trillion cubic feet as of the week ended Jan. 20, according to the Energy Information Administration. That’s 107 billion cubic feet higher than a year ago, and 128 billion cubic feet above the five-year average.
The market is looking ahead to the end of winter, said Peter McNally, global sector lead for industrials materials and energy at Third Bridge. The U.S. winter heating season runs to the end of March.
Natural-gas inventories have moved to a “very comfortable position, so we ended up with a big price drop after surging prices in 2022,” he said.
“With the seasonally weakest demand period ahead of us, natural-gas prices could go lower during the spring,” but experts at Third Bridge would “expect a slowdown in supply in response,” said McNally.