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Natural gas gives up gains on unseasonably warm weather and inventory build

Natural gas prices continued to decline today following news that more gas went into storage this week, expanding the market glut. The Energy Information Administration reported that natural gas stockpiles increased 73 Bcf in the week ended October 21, 2016, exactly in-line with economist expectations.

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The price of natural gas has slowly been declining for the last eight days after breaking above $3.00 per MMBtu in October. Natural gas prices remain about 42% higher now than a low of $1.90 per MMBtu in April, but are about 18% lower than where they stood on October 12.

Prices were behaving bullishly early this month as Baker Hughes reported the number of rigs drilling for natural gas had decreased by approximately half, and associated gas production was down dramatically as well with fewer active rigs in oil producing regions of the United States.

Natural gas has been giving up gains from early October, however, as warmer weather begins to turn market sentiment. Prices hit a 22-month high as traders waited for colder weather to increase demand for natural gas, but as the winter gets off to an unseasonably warm start, many are beginning to the think that the market will remain oversupplied through the season.

“The market is free falling,” Kent Bayazitoglu, director of market analytics at Gelber & Associates, wrote in a client note. “Speculators would be exiting long positions or entering into new shorts sensing blood in the water. Producers may be shorting the market further concerned that they can’t make future cash flows needed to service debt requirements.”

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Source: Bloomberg


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