Worst quarter ever
Natural gas is trying to shake off the recent massive plunge, but as of right now, there seem to be no fundamental drivers to stop the price decline. As a result of an exceptionally mild winter, which led to a large stockpile of the fuel needed for heating, US natural gas prices witnessed their worst drop in a quarter, falling more than 50% from December to March.
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The decline in gas prices was triggered by weaker-than-usual demand for heating. This has left 1,853 trillion cubic feet (tcf) of gas in US storage, according to the Energy Information Administration’s (EIA) inventory report for the week ending March 24. According to the EIA, the current gas storage balance in the United States is 31% more than the balance at the same time last year and 21% greater than the five-year average.
US LNG exports soared notably
In other news, last month, US producers of liquefied natural gas (LNG) recovered momentum as the nation’s second-largest exporter Freeport LNG increased output. This drove total exports to an all-time high of 7.73 million tonnes, according to statistics released on Monday by Refinitiv Eikon.
The Freeport LNG facility in Texas, which had suspended operations after a fire last year, resumed operations in February after an eight-month outage. Monday was on track to pull in approximately 2.2 billion cubic feet per day (bcfd) of gas, exceeding its nameplate capacity and increasing the nation’s overall processing rates.
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This month, 108 cargoes containing 7.73 million tonnes of LNG exited US ports. This is surpassing the previous high of 7.67 million tonnes set a year earlier, according to data from Refinitiv Eikon trade flows. Again, Europe was the primary destination for US LNG exports, taking over 71% of total cargo, while Asia received 1.32 million tonnes or 17%.
Extreme volatility will likely continue
The front-month futures contract gained or lost more than 5% on twelve of the last twenty-two trading days. As a result of the increased gas market volatility, open interest in NYMEX gas futures reached 1.34 million contracts, the highest level since October 2021. On Friday, open interest in the front-month contract alone surpassed 385,000 contracts, the highest level since March 2020.
In light of that, the decline in gas prices and the 20% spike in crude oil futures have pushed oil’s premium over gas to its largest level in over 11 years. In recent years, this premium has led US energy businesses to prioritize oil exploration over gas exploration.
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On Monday, the oil-to-gas ratio, or the ratio between oil and gas prices, reached 38-to-1, the highest level since May 2012. The premium of crude oil over gasoline has averaged 29 in 2023, 15 in 2022, and 20 over the preceding five years (2018-2022).
Should the price go below the recent psychological threshold of $2, it may reach 2020 lows in the region of $1.50. Alternatively, bulls must push the price over $2.65 in order to eliminate the immediate bearish danger. In this case, the next objective would be $3.
Natural gas 1D chart, source: tradingview.com, author’s analysis
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