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Natural Gas Slumps 2% As Demand Weighs on Energy Industry

March 26, 2020 at 15:48 by Andrew Moran

Natural gas futures fell more than 2% on Thursday, despite the US government reporting a slightly larger-than-expected decline in domestic inventories. The overall energy industry continues to be battered by falling global demand due to the COVID-19 pandemic decimating the economy.

May natural gas futures tumbled $0.035, or 1.97%, to $1.68 per million British thermal units (btu) at 15:34 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are on track for a surprising weekly gain, but they are still down 23% year-to-date.

According to the US Energy Information Administration (EIA), domestic stockpiles of natural gas declined by 29 billion cubic feet for the week ending March 20. The market had penciled in a drop of 27 billion cubic feet. In total, US supplies stand at 2.005 trillion cubic feet, up 888 billion cubic feet from the same time a year ago. They are also 292 billion cubic feet above the five-year average.

The coronavirus crisis has hurt global demand levels of natural gas and crude oil. With experts forecasting the gross domestic product (GDP) to contract worldwide due to COVID-19, energy prices are reacting unfavorably. The world is facing a huge oversupply issue after years of the US producing massive amounts of natural gas and crude.

Overall, the near-term outlook for natural gas is bearish as producers are not significantly curtailing output. However, the infrastructure to establish natural gas projects might be slower to come online because of the virus outbreak shutting down the labor market. Another important factor to note is that investors may not be as ebullient to pour resources into new projects since the long-term prospects are cloudy and prices are at multi-year lows.

The natural gas industry may get a lifeline as China gradually returns to normal. In recent years, Beijing has been importing liquid natural gas (LNG) as it transitions away from coal. That said, the future is uncertain since many health experts are warning of second and third waves of the coronavirus, which is unfolding in parts of East Asia.

In other energy markets, May West Texas Intermediate (WTI) crude oil futures tumbled $1.11, or 4.53%, to $23.38 a barrel. June Brent crude futures dipped $0.52, or 1.73%, to $29.47 per barrel. May gasoline futures jumped $0.045, or 7.43%, to $0.65 a gallon. May heating oil futures slid $0.023, or 2.11%, to $1.075 per gallon.

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