U.S. natural gas futures bounced off early-session lows after sinking to their worst levels in nearly four years ahead of the March contract expiry on Tuesday, as high inventories and production levels impact a market overwhelmed by milder temperatures.
The contract for March (NG1:COM), the last month of the heating season, settled -2.7% to $1.615/MMBtu after dropping to as low as $1.511 early in the session, its weakest since June 2020, while the most-active April contract ended +3.7% at $1.808/MMBtu.
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Natural gas prices have plunged 35% YTD, hurt by a mild winter that has left stockpiles considerably above normal, while production has remained near record highs despite the January freeze that briefly cut output and sent gas demand surging.
“It’s been a very warm November through March, so weather related natural gas demand is lower, which allowed for larger storage,” Robert DiDona of Energy Ventures Analysis told Reuters.
Weather-related demand going into the final month of the heating season is expected to be modest, and warmer than normal temperatures likely will limit withdrawals from storage and drive up surpluses ahead of the injection season.
While an “excessive fund short position” keeps open the possibility of a rally, unless demand for natural gas picks up “the glut is going to get larger” with the potential for another price crash, Phil Flynn of Price Futures Group said.
