No Rally for Natural Gas Despite Promising Movement
Natural gas prices continue to resist a rally as they stay close to $2.80, and there is good reason to expect the price to reman there.
Quick overview
- Natural gas prices attempted to rally but ultimately settled near a 10-year low due to low demand and high supply.
- Despite a slight increase in prices recently, analysts remain skeptical about a sustained upturn in the market.
- Current natural gas reserves are 6% fuller than normal, contributing to the downward pressure on prices.
- Future demand may rise with colder weather in Europe, but prices are expected to remain stable or decline further in the near term.
It looked like a rally was coming for natural gas on Wednesday and then again on Thursday, but both attempts have ended with the price settling back down close to a 10-year low.
Early Thursday there was an uptick in natural gas prices, but that was followed by a couple of steep declines. The price is currently up 0.102% for the last 24 hours but that is far short of the rally that some analysts were anticipating.
Over the past couple days, every time the price looks like it might surge, the legs were taken out from under those attempts, and we saw the price plummet once more. There is still some expectation that the price will increase over the next couple of weeks when demand may suddenly intensify for a short period, but recent history has demonstrated that upswings in natural gas prices simply do not last very long when the overall demand is low and supply is high.
The entire natural gas market is dealing with low demand at the moment, and that is expected to continue through the fall months as well. Even when winter hits, demand may not be high enough to counter the massive supplies of natural gas available. Currently natural gas suppliers are reporting reserves that are 6% fuller than normal.
Why the Expected Rally May Not Happen
Demand for electricity continues to remain low since temperatures are relatively stable and mild across the United States. The most recent trade agreements between the United States and the European Union could drive trade of natural gas between the two partners. If the EU decides to import large quantities of natural gas from the United States, we may see a surge in demand for natural gas production in the US.
As the weather turns colder in Europe, demand should increase and benefit the US natural gas market. The current $2.83 price for natural gas may remain the standard for a few months more. The $3 mark might be a tough one for gas to break through until we get well into winter. With so much gas in reserves, it would be easy for buyers to find producers who can meet them below the $3 level for natural gas. Outside of an unexpectedly frigid winter season or a hit to the current reserves, the price of gas should be relatively stable or even fall further over the next few months.
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