Natural gas falls to lowest price since 1995

Mike Zaccardi, CFA, CMT

Natural gas prices plummeted to fresh 25-year lows on Thursday following a much larger than expected build in nat gas storage. The inventory increase was 120 Bcf while the consensus forecast was 105 Bcf. The ICE trading market indicated a build of 112 Bcf, so the financial traders were a bit closer.

Prices immediately cratered. By the evening, the July contract dipped to the low $1.40s. August even touched $1.42 before rebounding this morning. Later today, the July contract will expire, so expect rather light trading volume on that term. More volume is already focused on August.

Price for the balance of 2020 now average under $1.90 – remarkable for this time of year. With a few more rough days, the continuous prompt-month of natural gas could threaten its lowest weekly settle since way back in 1992! The lowest price all-time for Henry Hub natural gas is $1.05 from 1992.

Looking overseas, UK’s NBP natural gas price has increased relative to the US Henry Hub benchmark, so perhaps we could see LNG exports rebound slightly. We have actually seen that already to a minor extent.

The one data point the bulls can point to is very strong exports to Mexico, but that could be in jeopardy if our friends south of border see more spikes in Coronavirus cases.

Natural gas production has ticked lower in the last few days, but demand has been somewhat soft in the last week to ten days as well with mild temperatures and ongoing COVID-19 downside persisting across the markets.

Going forward, extremely low NG prices and a generally warm outlook through September should promote record power burns this summer. Bearish concerns are in place for the autumn and next winter though as residential & commercial demand will likely be weak given the expectation of COVID hanging around for the next nine months.

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Chart used with permission from Tradingview.com