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Natural Gas Sheds 3% on Smaller-Than-Expected Weekly Supply Drop

April 2, 2020 at 15:11 by Andrew Moran

Natural gas futures fell as much as 3% on Thursday after the US government reported a decline in domestic inventories that came in less than the market had anticipated. Natural gas has taken a beating under current economic conditions, falling about one-third so far this year.

May natural gas futures tumbled $0.045, or 2.84%, to $1.542 per million British thermal units (btu) at 14:58 GMT on Thursday on the New York Mercantile Exchange. Natural gas is poised for a weekly decrease of about 10%. Over the last 12 months, prices have crashed 42%.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas declined by 19 billion cubic feet for the week ending March 27. The market had forecast a drop of 25 billion cubic feet. In total, stockpiles stand at 1.986 trillion cubic feet, up 863 billion cubic feet from the same time a year ago. They are also 292 billion cubic feet above the five-year average.

Now that winter is over, industry observers are performing an autopsy on natural gas. The biggest factor for the energy commodity was the weather. With warmer temperatures across North America and Europe, there was less of a demand for the energy source, which created a supply gut in global markets. Despite a few cold spells between December and March, there were not enough to significantly lift demand and diminish storage levels.

What is worse for the natural gas market is that the industry may have only just reached the peak of the bearish cycle. Since the global economy has come to a screeching halt, demand for oil and gas has fallen to tremendous lows.

Francisco Blanch, head of global commodities and derivatives research at Bank of America, had this warning in an interview with Bloomberg:

There’s a chance we will see a collapse in prices in the US. We are going to be weak on the demand destruction related to the virus, but the real issue is that we had a very warm winter and we are coming out with extreme high inventories.

It may take some time to the international natural gas market to return to balance. With producers winding down output and industrial facilities shutting down, the supply deficit could narrow faster than expected. Until then, natural gas could test $1.30 in the coming weeks.

In other energy markets, May West Texas Intermediate (WTI) crude oil futures soared $5.49, or 27.03%, to $25.63 per barrel. June Brent crude futures surged $5.10, or 20.61%, to $29.84 a barrel. May gasoline futures tacked on $0.12, or 22.51%, to $0.6695 per gallon. May heating oil futures picked up $0.12, or 12.99%, to $1.0534 per gallon.

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