background image background image background image

Natural Gas drops below $2

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Natural gas slumped to a four-year low on Monday. This the lowest seasonal price on record going back to 1990 has been driven by the continued absence of cold U.S. winter weather to drive demand from utilities towards heating. The route to salvation for this very important fuel increasingly have to come from companies cutting production, either voluntary or involuntary


Natural gas slumped to $1.83/therm in early trading Monday. The lowest level in almost four years and the lowest seasonal price on record going back to 1990 has been driven by the continued absence of a cold U.S. winter weather to drive demand from utilities towards heating. Just like Europe the States are witnessing a weak demand season with producers being unable to shake off a supply glut amid rising production.

20OLH_NG3
Source: Saxo Bank

The below charts highlight some of the challenges that the natural gas market has been facing for several months now. Last year a frigid cold blast into February helped drive down gas stocks to a five-year low at 1.1 trillion cubic feet (Tcf). What followed was the strongest injection season since 2014 as consumers and exporters struggled to keep up with the deluge of supply. While December saw the tightest trading range on record going back to 1990, the mild December weather resulted in Natural gas inventories starting 2020 some 20% higher than the previous year (Source: EIA's STEO)

Unless we see a pickup in demand or a slowdown in production the market will begin to worry that storage capacity could be reached towards the end the coming injection season which runs from late March to November. Weekly storage change data from the Department of Energy (DOE), released on Thursday's at 15:30 GMT gives the market important information in this regard. 

After peaking at 96 Bcf/day in late November natural gas production has since dropped to the current 91.7 Bcf. Pipeline deliveries to LNG terminals almost doubled during 2019 to reach 8 Bcf/day and LNG exports  look set to continue to rise, not least due to expectations that China, as part of the trade deal, will boost demand for U.S. gas.

Despite the recent production slowdown and rising exports the price has nevertheless still slumped. On that basis the route to salvation for this very important fuel increasingly have to come from companies cutting production, either voluntary or involuntary. Peter Garnry will be taking a look at energy stocks in a separate article here on www.analysis.saxo 

 

20OLH_NG1

The already record short in natural gas expanded further by 7% to 267k lots in the week to January 14. Any sudden change in the late winter outlook or a colder-than-normal spring is needed to shake the shorts. The four contracts used in the chart below are all either swap or futures contracts based on a price for delivery at the Henry Hub in Louisiana. 

20OLH_NG2

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • 350x200 peter

    Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • 350x200 althea

    Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • 350x200 peter

    Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • 350x200 charu (1)

    FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • 350x200 ole

    Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.