zerohedge.com / by Nick Cunningham via OilPrice.com / Feb 22, 2017 2:40 PM
Natural gas prices plunged to their lowest level since November on mild weather in the U.S., which has caused storage levels to decline at a much slower pace than expected.
Contracts for March delivery on the Nymex exchange dipped to $2.63 on February 21, down a third since December. The bearish swing has come after successive EIA reports showing a modest drawdown in gas inventory levels.
Natural gas consumption is seasonal, with spikes in demand occurring in winter months. As such, storage levels build up over the course of the year, especially in the milder months of spring and fall. Then, gas is used up in the winter. The winter of 2016 was the warmest on record, leading to a paltry drawdown in inventories. The result was a cratering of natural gas prices last year as inventories swelled following the end of winter.
This winter things were supposed to be much tighter. After all, upstream production fell last year after a decade of relentless growth. Meanwhile, the hollowing out of the coal industry has led to a corresponding uptick in natural gas consumption in the electric power sector, which is another way of saying that gas demand is rising on a structural basis. Also, LNG exports started to pick up last year, opening up another source of demand for U.S. natural gas.