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U.S. natural gas futures rebounded from early-session lows after falling to their worst levels in nearly four years ahead of the March contract expiration, as inventories and high production levels impact a market overwhelmed by warmer temperatures.
THE contract for March (NG1:COM), the last month of the heating season, has stabilized -2.7% to $1.615/MMBtu after falling as low as $1.511 earlier in the session, the weakest level since June 2020, while the most active April contract ended +3.7% at $1,808/MMBtu.
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Natural gas prices have slumped 35% since the start of the year, hit by a mild winter that left supplies significantly above normal, while production remained near record highs despite a January freeze that briefly cut production. production and caused demand for gas to surge.
“It was a very warm November through March, so weather-related demand for natural gas is lower, which has allowed for larger storage,” Robert DiDona of Energy Ventures Analysis told Reuters.
Weather-related demand in the final month of the heating season is expected to be modest, and warmer-than-normal temperatures will likely limit withdrawals from storage and increase surpluses ahead of the injection season.
While an “excessive short position of the fund” keeps open the possibility of a rally, unless demand for natural gas recovers, “the excess will increase” with the potential for another price collapse, Price’s Phil Flynn said Futures Group.