Natural Gas Prices Drop in Spite of Cold Weather

The winter time and cold temperatures generally drive natural gas commodity prices upward. Naturally, the demand for natural gas increases as Americans try to keep their homes warm as temperatures drop to frigid levels. Typically, as this demand rises, prices follow. The Polar Vortex of 2019, which many had speculated would have caused an increase in natural gas prices, defied the norm.

According to Forbes, natural gas prices had actually dropped by 25% during the last 14 trading days of the Polar Vortex. This is not due to a lack of demand. The cold temperatures were not immune to rising demand. In fact, last week, natural gas demand reached “an all time record of 150 Bcd/d, half of which was for heating”. This counterintuitive trend underscores the recent volatility of natural gas prices.

The cause for the drop is likely twofold: first, the domestic natural gas storage deficit is falling and second, temperatures are rising after the Polar Vortex. Towards the end of 2018, there were concerns about natural gas storage, or lack thereof, in the United States. Those concerns have dwindled as the storage deficit has been cut nearly in half since late last year. Temperatures are also now on the rise. Even when considering the chilling Polar Vortex the Midwest and Northeast endured, temperatures are higher than the average and are expected to climb.

With projections calling for a warm and early spring, it is unlikely that natural gas will break the trend. However, if production still continues while demand is low, it could further offset the storage deficit which could change have a significant impact on prices at the end of 2019.