Natural Gas Futures Price Drop Due To A Much Warmer Winter Than Expected

Diesel prices have resumed leading energy futures lower this morning, dropping over 2% in early morning trading. It looks like the only technical support to be seen between here and the $2.50 level is a relatively weak and oft-broken 5 day moving average at ~$2.83, which the prompt month contract is testing today.

Gasoline and crude oil futures are trailing their distillate counterpart, each trading lower .75%-1% to start the day.

The Department of Energy reported an across-the-board build in its headline inventory values last week. Gasoline stockpiles in the US increased for the fifth consecutive week, jumping 5 million barrels but still remaining well below its 5-year seasonal range as exports remain strong. National diesel inventory rose nearly 3 million barrels last week, returning to pre-war levels.

Six months ago, global demand for natural gas was through the roof and Europe was staring down the barrel at what they anticipated to be a brutally cold winter. Since then, due to surprisingly effective planning and a much warmer winter than expected, Henry Hub natural gas futures price has dropped 70%. This precipitous drop has put a damper on enthusiasm surrounding oil and gas production in the US.

The warm winter hasn’t been unique to Europe: the NOAA has measured 8% less “heating degree days” this winter season. While that may not seem like enough to move the needle, it translates to a >$1 per gallon retreat in retail heating oil prices since November, despite seasonally low distillate inventories.

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