Mild weather has curbed demand for heating fuel, pulling down prices by about 35% in a year.
In just one year, the US gas market has gone from a meteoric rise to a dizzying decline. You can thank Mother Nature for that.
This winter is shaping up to be one of the mildest in years, damping demand for heating fuel and yanking down US gas futures by about 35% from last January.
It’s a stunning reversal for a commodity that soared to a 14-year high in 2022 after Russia invaded Ukraine and Europe clamored for American supplies.
Now, geopolitical tensions are taking a back seat to weather so warm that New York’s Central Park had spring-like temperatures in December, while ski slopes in New England were thick with mud.
It largely comes down to climate change and El Niño, a heating of the tropical Pacific Ocean that can trigger balmy winters for the northern US. The World Meteorological Organization declared last year the hottest on record, and the warmth is expected to linger for months to come.
Gas futures are hugely dependent on the whims of the elements, making it difficult to predict what they’ll do day to day, let alone weeks or months in the future. In previous years, wrong-way bets on likely supplies come spring have caused some hedge funds to collapse.
“Natural gas balances need heating demand to arrive in earnest in January,” Bloomberg Intelligence analysts said. Market sentiment last month was “muted by production that’s well above expectations.”
Prices are getting some support from exports of liquefied natural gas, with the US now the leading shipper. But Europe — a crucial market for that fuel — is experiencing unusual warmth, too (even with a cold snap in Scandinavia). Regional gas prices on Tuesday fell to the lowest in almost five months.
For now, traders remain pretty bearish. A Bloomberg survey of analysts put prices for this year little changed.
Yet, as the past year’s dramatic U-turn has demonstrated, things can change quickly, and traders will remain glued to their weather models for any signs that winter will finally rear its icy head.
Speculators Are Least Bullish on Oil on Record
Annual average net long positions stand at lowest on records dating to 2011
Supply is back in the driver’s seat for oil markets. At issue is rising production from non-OPEC+ nations, which could outstrip global demand that’s still growing but at a slower pace. The cartel’s response has been to pledge deeper output cuts, but traders are skeptical they’ll be sufficiently implemented to eliminate a surplus. The combination has already pushed crude to its first annual drop since 2020. Meanwhile, speculators have tightened their grip, fueling price swings that are at times divorced from fundamentals.
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