• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes The Inconvenient Truth Of Electric Cars
  • 8 minutes Iran downs US drone. No military response . . Just Destroy their economy. Can Senator Kerry be tried for aiding enemy ?
  • 1 hour Here we go folks, the wish of so many: Pres. Trump threatens to lessen US security role in Strait of Hormuz, unveils sanctions
  • 3 hours Climate change & Wildfires: More Wildfires To The Western U.S., Will Affect Tens Of Millions Of People
  • 17 mins Wonders of Shale - Gas, bringing investments and jobs to the US
  • 17 mins Magic of Shale: EXPORTS!! Crude Exporters Navigate Gulf Coast Terminal Constraints
  • 7 hours Hard To Believe: UAE Will Work To Defuse Middle East Tension
  • 1 hour The Plastics Problem
  • 3 hours Looks like Trump is putting together a "Real" Coalition to protect Persian shipping lanes. Makes perfect sense. NO Fake "Coalition's of the Willing" UPDATE REUTERS Pompeo "Sentinel Program"
  • 5 hours Cherry Picking Climate Data
  • 15 hours Solar Panels at 26 cents per watt
  • 8 hours Oil Demand Needs to Halve: Equinor
  • 8 hours Green vs. Coal: Bavaria Seeks Fast-Track German Coal Exit in Snub to Merkel Plan
  • 52 mins Is $60/Bbl WTI still considered a break even for Shale Oil
  • 14 hours Huge UK Gas Discovery
Alt Text

America’s Most Important Natural Gas Export Market

Trump’s plans to impose tariffs…

Alt Text

The LNG Shipping Market Is Set For A Bull Run

In contrast to the volatile…

Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

More Info

Premium Content

Plunging Natural Gas Inventories Pull Prices Even Higher

Natural gas markets have experienced a dramatic change in just the past two months, upending forecasts about a protracted period of oversupply.

The EIA reported a major decline in natural gas inventories for the week ending on December 23, a drawdown of 237 billion cubic feet (Bcf), which takes storage levels in the U.S. down to 3,360 Bcf. That is 10 percent lower than year-ago levels at this time of the year, and also 2.3 percent lower than the five-year average. This is a remarkable turnaround in just a few weeks’ time.

Natural gas prices have been low for years amid a persistent state of oversupply. Gas production has increased inexorably for years, providing more than enough supply to meet demand. The mild winter last year plunged the market into a state of disorder. Excess gas was diverted into storage, taking inventories to record levels. As a result, natural gas prices cratered below $2/MMBtu and there was not a lot of hope that the market would adjust in the near-term.

But production began falling, having dipped 5 percent since February. That raised the prospect of inventories coming back down towards the five-year average, but many analysts still saw a huge buffer that could last through this current winter season.

Since October, however, gas inventories have begun to drawdown in dramatic fashion. The fact that inventories are now below the five-year average is an extraordinary development (the blue line in the chart below has dipped below the dark gray line, after staying above it since mid-2015). Related: Has The OPEC Rally Gone Too Far?

(Click to enlarge)

What does this mean? The U.S. is no longer overflowing with gas, which means the gas markets are no longer in a state of oversupply. It is no coincidence then that NYMEX gas contracts for February delivery have surged to $3.80/MMBtu, the highest price in more than two years. Those prices are also up by roughly half since October, a stunning price rally.

Moreover, there is plenty of room to run for natural gas prices. Production in September – the latest month for which monthly data is available – was still 4 percent lower than February 2016 levels. And demand has been very strong so far this winter with chilly temperatures and winter storms across the country. It is entirely conceivable that natural gas tops $4/MMBtu this winter, a level not seen since 2014.

In addition, with supply relatively inelastic in the short-term, inventories could continue to fall, dipping well below average levels. That tightness could send gas prices even higher.

Winners: Natural gas drillers, coal producers
Losers: Owners of gas-fired power plants, petrochemical and industrial customers that use gas as an input, consumers

(Click to enlarge)

By Charles Kennedy of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • GregSS on December 30 2016 said:
    No mention of new NGL export facilities coming online sending gas out of the country? Seems like it would be an important item to address in an article about Natural Gas inventories falling.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News