Natural gas prices: Fundamentals point to a probable corrective rebound

Natural gas prices in the US have been in a free fall, particularly in the past 8 weeks.  In fact, since mid December 2022 when the Nymex futures had rebounded to $6.98/MMBtu, the asset has dropped by 65.05%. Since the beginning of 2023, it has declined by about 40%. In the past two sessions, it has been hovering around a level last hit in 22nd January 2021.

What’s driving the market

A look at the natural gas prices’ path in recent weeks shows that all the gains attained following Russia’s invasion in Ukraine and the subsequent energy crisis in Europe have been erased. Interestingly, the supply concerns that boosted the commodity in the past year have shifted into a major bearish driver.

The warmer-than-usual winter season in the Northern Hemisphere has resulted in the significant build of inventories within the US. This is coupled with the expected closure of the Freeport storage facility in Texas. Granted, the Federal Energy Regulatory Commission (FERC) approved the facility’s request to begin the process of reviving its operations. Nonetheless, it may take a while to meet the regulators’ demands. It is yet another setup for increasing domestic supplies.

Based on the weekly natural gas storage report released by the Energy Information Administration (EIA) on Thursday, the stocks were 222 billion cubic feet (Bcf) higher than during a similar period in 2022. Similarly, it was 163 Bcf higher than the 5-year average.     

Have natural gas prices hit the bottom?

While I expect the bears to remain in control for a while longer, chilly weather in the US northeast region may yield a corrective rebound for natural gas prices. Weather forecasts indicate that temperatures in New York City and Boston may drop to 0 and -30 Fahrenheit respectively. The subsequent surge in heating demand will likely offer some relief to the commodity’s prices. Even so, the once steady support zone of $3.00 may remain a steady resistance level in the short term.

natural gas prices
natural gas prices

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