U.S. natural gas prices are on a downward trend, as futures traders mull over key indicators like warmer-than-expected weather in November across much of the U.S. and higher stored inventories, which have both crimped price growth.
Natural gas prices had already fallen by 11% last week, and are struggling early this week, as well. Tuesday's trading continued the trend, with New York Mercantile Exchange prices falling by nearly 5%, to $2,684 per million British thermal units.
Natural gas futures have slid, as well. According to the U.S. Energy Information Administration, the New York Mercantile Exchange November 2016 contract expired on November 3 at $2.764/MMBtu. Meanwhile, the December 2016 contract decreased to $2.792/MMBtu, down 24 cents on a week-to-week basis.
Warmer weather patterns have settled in for a prolonged stay for a good portion of the country, especially across the Eastern U.S. and throughout the Great Lakes region. That reduces demand, and that trend has contributed to natural gas futures prices declining by over 10% through the first week of November.
Another factor negatively impacting natural gas prices - glut-level supplies, even though previous demand had been strong.
"Total natural gas demand in the Lower 48 states reached record levels during the 2016 injection season -- April through October," states the EIA this week. "According to data from PointLogic, natural gas consumption and net exports averaged 71.4 billion cubic feet per day - 2.2 Bcf/d above the 2015 injection season, which held the previous record."
Industry observers say that supply and weather are a significant one-two punch that is keeping prices down.
"Natural gas prices are seasonally low right now for two reasons: supplies are at record highs, and demand is low due to the warmer weather we are currently experiencing," offers Joe Fallico, a commodities futures broker at Insignia Futures & Options in Schaumburg, Ill. "Looking at the January 2017 natural gas futures chart, prices have recently dropped below their 200-day moving average and have been heading lower."
With current natural gas demand low and supplies high, Fallico doesn't see prices rising until demand starts to pick up again and depending on how cold it gets across the country in the coming months.
"I wouldn't say futures traders are worried about low natural gas prices, as it's just as easy to go short a futures market as it is to go long," he adds. "I'd say only the natural gas procedures are worrying about lower prices, as their revenues are down due to the lower demand."
Weather-wise, predictions for the U.S. this winter aren't exactly in sync, but the National Weather Service cites a "typical" La Niña weather pattern bringing colder temperatures to the Northeast and also drawing warmer weather across the Midwest and South. Cooler and wet weather patterns should prevail in the U.S. Northwest, the NWS says.
So far the warmer weather is causing major headaches for natural gas suppliers.
"When winters are mild, like they have been this November, and when people aren't using gas to heat their home or using air conditioning to cool their homes, there is a surplus of natural gas on the market," points out Lori-Lee Emshey, co-founder of Future Sight AR, an augmented reality software provider for energy companies.
"The gas companies are supplying, but no one is buying," Emshey adds. "This causes a decrease in natural gas prices. As we're in El Niño right now, these mild winter temperatures are likely to continue everywhere except for the most Northeastern states and the demand for natural gas will likely remain low."