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Natural Gas Rallies on Decline in US Inventories

January 10, 2019 at 16:10 by Andrew Moran

Natural gas futures are surging on Thursday after the US government reported a decline in domestic inventories of the energy supply. It was already up before the supply data, but the better-than-expected numbers helped fuel the commodity’s higher gains.

March natural gas futures rallied $0.04, or 1.35%, to $2.88 per million British thermal units (btu) at 14:46 GMT on Thursday on the New York Mercantile Exchange. Natural gas is on track for an impressive 3% weekly gain, and it is up more than 0.5% year-to-date.

According to the US Energy Information Administration (EIA), domestic supplies of natural gas decreased by 91 billion cubic feet for the week ending January 4, which is a little more than the market forecast of 84 billion cubic feet. In total, natural gas stockpiles stand at 2.614 trillion cubic feet, which is down 204 billion cubic feet from the same time a year ago, and 464 billion below the five-year average.

The energy commodity has been cratering in the past month, shedding more than 20% of its value. While some analysts do anticipate lower prices, natural gas could surprise the market throughout the winter. Right now, a mix of multi-year low inventories, a seasonal spike in demand, and higher structural demand could contribute to a fresh bull market in natural gas prices.

Ostensibly, the biggest concern for investors is the winter weather. So far, in much of the US, temperatures have not kept up with the forecasts in the weeks leading up to winter. This, analysts warn, could create a scenario where there is congestion at storage facilities by the summer, which would inevitably slash prices.

It does not help when US firms are drilling at a historic pace and producing natural gas at record levels. If storage levels are depleted, then these companies’ output would immediately replenish these inventories.

In other energy commodities, March West Texas Intermediate (WTI) crude oil futures dipped $0.46, or 0.87%, to $52.23 per barrel. March Brent crude futures slipped $0.37, or 0.6%, to $61.07 a barrel. February gasoline futures slid $0.005, or 0.39%, to $1.42 a gallon. February heating oil futures were flat at $1.88 per gallon.

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