US natural gas futures saw a two-day decline of more than 9%, reaching a 10-month low of $4.04 per million British thermal units (MMBtu) on the second trading day of 2023. US natural gas futures were still up more than 30% in 2022 despite a 12-session stretch during which the price plunged by almost 36%.
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Henry Hub prices are expected to average $5.47/MMBtu in 2023, rising near $7/MMBtu in the first quarter before falling below $5/MMBtu in the second and third.
Analysts predict that it will happen as a result of tight gas balances and global and domestic economic challenges. Meanwhile, Goldman Sachs expects natural gas prices on the NYMEX to trade at $4.15 per MMBtu in the summer of 2023.
In a letter to clients on December 14th, Goldman oil and gas analysts stated:
“We expect 2025 to mark the end of this bearish cycle as LNG export capacity increases deliver a major step-up in demand.”
US production increases again
In the meantime, the US production had largely recovered by Tuesday after widespread freeze-offs occurred during an Arctic storm last week, helped by increases in the Northeast. Bloomberg estimates that on Tuesday, output increased to over 99 Bcf/d (Billion cubic feet per day), up from about 95 Bcf/d in late December.
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Although disruptions in North Dakota and Montana “remain continuing,” output overall is returning near the record levels slightly above 100 Bcf/d achieved in 2022, according to Wood Mackenzie analyst Laura Munder.
European gas declines too
Additionally, on Monday, wholesale natural gas prices in Europe reached their lowest point since reaching record highs following Russia’s invasion of Ukraine in late February 2022.
Due to a mild winter, countries in the European Union have been able to use less gas from reserves that were accumulated in preparation for a reduction in supply from Russia, which served as the EU’s primary supplier prior to the war.
The benchmark European gas contract, Dutch TTF gas futures for the following month, reached an all-time high of $367 in March. It dropped to $77 on Monday, marking the lowest point since February 21st prior to the war and a 50% decrease from one month prior.
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As previously said, natural gas declined below the pre-war levels. It has also dropped below the long-term uptrend line, cancelling the bullish trend. If the warm weather persists throughout the rest of the winter, further declines seem likely.
The next support could be found near $3.60 and if not held, another leg lower to $3.50 could occur.
Natural Gas 1W chart, source: tradingview.com author’s analysis