Storage data and price trends
Thursday's trading revealed higher-than-expected savings withdrawals, temporarily injecting bullish sentiment into the market. However, it was not enough to reverse the four-month consecutive downward trend. Despite prices rising 7% on Wednesday, natural gas prices are on track to fall more than 10% this month, the longest consecutive period of monthly declines since March 2020. This trend is thought to be due to the warm winter, resulting in higher than average prices. Normal stockpiles and uninterrupted production levels despite brief disruptions in January.
Analysis of production and consumption
Production in the 48 lower U.S. states averaged 105 billion cubic feet per day (bcfd) in February, slightly below December's record high. Although the market's initial reaction to the unexpected storage withdrawal was bullish, this reaction quickly waned due to market oversupply and continued lack of buying interest. Future weather conditions will be critical in shaping demand, and withdrawals are expected to naturally decline as spring approaches.
Background of the European LNG market
In 2023, the United States maintained its position as the leading supplier of liquefied natural gas (LNG) to Europe. Europe's LNG import capacity is expected to increase due to efforts to diversify energy sources following Russia's invasion of Ukraine. Despite capacity expansion and record LNG imports, Europe's warm winter led to high natural gas storage levels, reducing demand and impacting prices.
Short-term market outlook
Given current market conditions, short-term forecasts for U.S. natural gas prices tend to be bearish. The combination of ample storage, stable production and mild weather conditions means prices are unlikely to rise significantly. Demand is expected to decline as the heating season progresses, potentially leading to excess storage. Traders should adopt a cautious approach and closely monitor weather forecasts and storage data for signs of market changes.
