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Natural Gas Crashes 4% on Smaller-than-Expected Supply Withdrawal

Summary:
Natural gas futures are continuing to be dominated by the bears, with the worst of winter weather seemingly over. Natural gas prices had shown some momentum earlier in the trading week on forecasts showing frigid temperatures in the middle of the month, but they have since pared their gains, falling below .80. Could the energy commodity slide to .50 next? April natural gas futures tumbled %excerpt%.1032, or 3.69%, to .741 per million British thermal units (btu) at 14:40 GMT on Thursday on the New York Mercantile Exchange. Natural gas is up 0.1% on the week, as well as 11% year-to-date. According to the US Energy Information Administration (EIA), domestic natural gas inventories declined by 98 billion cubic feet in the week ending February 26, falling short of the market estimate of 136

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Natural gas futures are continuing to be dominated by the bears, with the worst of winter weather seemingly over. Natural gas prices had shown some momentum earlier in the trading week on forecasts showing frigid temperatures in the middle of the month, but they have since pared their gains, falling below $2.80. Could the energy commodity slide to $2.50 next?

April natural gas futures tumbled $0.1032, or 3.69%, to $2.741 per million British thermal units (btu) at 14:40 GMT on Thursday on the New York Mercantile Exchange. Natural gas is up 0.1% on the week, as well as 11% year-to-date.

According to the US Energy Information Administration (EIA), domestic natural gas inventories declined by 98 billion cubic feet in the week ending February 26, falling short of the market estimate of 136 billion cubic feet. In the previous week, the US reported its second-largest supply withdrawal on record.

In total, domestic stockpiles stand at 1.845 trillion cubic feet, down 277 billion cubic feet from the same time a year ago. They are also 178 billion cubic feet below the five-year average.

In its Annual Energy Outlook 2021 report, the EIA stated that annual natural gas output tumbled 1% to an average of 111.2 billion cubic feet per day last year, highlighting the contraction in drilling activity amid falling prices and demand destruction throughout the COVID-19 public health crisis.

Looking ahead, the EIA does not anticipate a full recovery to pre-pandemic supply and demand levels until 2023 and then balloon until 2050.

New weather models are pointing to colder trends later next week. Maxar’s Weather Desk found that temperatures have been shifting colder in several major US regions. Other weather patterns are finding colder air traveling through Europe.

But would it be enough to increase demand? Sliding natural gas prices suggest that investors do not think, so as many industry observers are anticipating lower commercial and residential demand by as much as 10%.

Overall, the industry is facing a supply glut, and market analysts do not expect the situation to be alleviated anytime soon. As a result, reports suggest that US liquefied natural gas (LNG) exporters could witness an increase in cargo cancellations this summer.

IHS Markit’s James Taverner, research and analysis director, projects production to grow by 3% this year, telling CERAWeek:

LNG demand would have to grow by something like 9%-plus to absorb all the surplus from last year, as well as the supply growth in 2021. So if a surplus does persist, as we think is likely, this summer we may see once again energy exports being turned down to balance the market just like last year.

In other energy commodities, April West Texas Intermediate (WTI) crude oil futures surged $1.49, or 2.43%, to $62.77 per barrel. May Brent crude futures soared $1.91, or 2.98%, to $65.98 a barrel. April gasoline futures climbed $0.023, or 1.04%, to $1.9721 a gallon. April heating oil futures picked up $0.0295, or 1.61%, to $1.8652 per gallon.

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Published under: Natural Gas

Andrew Moran
I am a full-time professional writer. Prior to my self-employment, I worked as a reporter for Digital Journal covering the politics beat and The Toronto Times reporting on the city’s entertainment scene. I currently write mostly about business, marketing and finance

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