So far this year, natural gas has performed the worst among major commodities, posting painful losses in January and February. It has rebounded somewhat in the last few weeks, but hovering around $3 per MMBtu, gas prices are still sharply lower compared to the fourth quarter.
According to NOAA, the U.S. just posted its second warmest February on record, dating back to when data collection began in the 19th century. Average temperatures were 7.3 degrees higher than average.
After mild temperatures swept across the continent for long stretches of February, natural gas spot prices crashed below $2.50/MMBtu by the end of the month, down more than a third compared to December highs.
The kicker was a shocking injection in natural gas storage levels in the last week of February – the first February increase in storage levels ever recorded. The surprise uptick in inventory levels threw demand projections off track, and it suggests that natural gas markets are heading back into a period of oversupply. Gas bulls might have hoped that prices would stay above $3/MMBtu and head towards $4/MMBtu, which would help gas drillers across the country, but that looks unlikely for the near- to medium-term. The unexpectedly weak drawdown season puts inventories back above long-run averages (see blue line in chart).
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