Natural Gas Remains Subdued Despite the Freezing January in the US
After crashing down from above $10 in 2022, natural gas futures have been consolidating for more than a year. Looking closely at the daily chart, it seemed like Gas was forming some sort of a slight bullish trend, but in November we saw a reversal down, bringing the price below $3. At the end of December, we saw another bullish move which sent Gas above $3, but once again sellers returned and sent the price to $2.20s.
The tensions in the Middle East and the Red Sea have been quite high in the last several months, which should have helped crude Oil and natural gas, but all bounces on geopolitical events have faded pretty fast and sellers have returned. The troubles in China, a deteriorating global economy, and very high interest rates by central banks have been keeping the sentiment negative for energy products such as Oil and gas.
Following the extensive winter weather in the last two weeks which increased energy consumption, traders braced for a possible record-breaking storage depletion in official gas reserves from the US. As a result, late last week we saw some bullish momentum in natural gas futures, with expiring February natural gas contracts extending their rally.
However, this week’s gas prices opened with a negative gap lower on forecasts of warmer weather. So, despite last week’s cold weather leading to one of the largest natural gas inventory draws on record, at 326 billion cubic feet exiting the inventories, gas closed the day lower as overall US supplies remain at the highs of seasonal averages, while producers are operating at full capacity.
Natural Gas Production at Record Levels in the US and Norway
Besides that, the US Energy Information Administration (EIA) published its Short-Term Energy Outlook late last year, predicting that natural gas output will reach new highs. According to the EIA’s late 2023 predictions, the natural gas output would increase to around 104 billion cubic feet per day (bcf/d) last year and 105 bcf/d this year, up from a record 99.60 bcf/d in 2022. EIA also anticipated that during January, natural gas prices to average approximately $3.60 which was lower than last year anyway. But, the prices have averaged $2.30 instead in January.
On top of that, the Norwegian Offshore Directorate showed that natural gas output in Norway reached an all-time high of 379 million cubic meters/ day (mcm/day) in December, increasing from the previous month’s levels, as full capacity production returned. in September, with the last two months of 2023 being particularly strong for exports. Norwegian Oil and gas companies intend to increase exploration activity and spending offshore in 2024, as Norway seeks to sustain the gas output while increasing exports to mainland Europe.
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