The annual withdrawal season runs from the late fall through the early spring as heating demand peaks during winter. While the price tends to reach highs in winter, 2022/2023 was not an ordinary season as the price made lower highs and lower lows. The injection season, when natural gas flows into storage across the U.S., began over the past weeks with stockpiles at a high level.
Nearby May NYMEX natural gas futures were around the $2.30 per MMBtu level on April 17, one-quarter the price at the August 2022 high. My Q1 energy recap on Barchart highlighted the 50.48% decline in natural gas in Q1.
The withdrawal season ends with stocks at a high level
Over the past years, natural gas in storage across the U.S. ended the withdrawal season at the following levels:
2019- 1.107 trillion cubic feet
2020- 1.986 trillion cubic feet
2021- 1.750 trillion cubic feet
2022- 1.382 trillion cubic feet
2023- 1.830 trillion cubic feet
Stocks at the end of the 2022/2023 peak withdrawal season were at the highest level since 2020, when nearby natural gas futures fell to $1.44 per MMBtu in June.
Source: EIA
The chart shows the first injection of the 2023 season that took natural gas supplies 25 billion cubic feet higher for the week ending on April 7. Stocks were 33% above the level at the same time in 2022 and 18.9% higher than the five-year average.
Over the past months, the rise in inventories has weighed on natural gas prices.
The trend remains bearish in mid-April 2023
In August 2022, nearby NYMEX natural gas futures reached a $10.028 per MMBtu high, the highest price since July 2008, when the energy commodity ran out of upside steam.
The twenty-year chart shows the plunge to a $1.946 per MMBtu low in April 2023, an 80.6% decline on the continuous futures contract. Natural gas rallied in sympathy with European prices as LNG demand has made U.S. natural gas a more international energy commodity. However, a warm European winter caused selling in the U.S. and European contracts.
European prices have declined
The U.K. and Dutch natural gas futures prices peaked in 2022 as the war in Ukraine, sanctions on Russia, and Russian retaliation caused significant price and availability concerns. However, the weather conditions ended the rally as warm temperatures caused the demand to decline.
The chart of U.K. natural gas futures shows a steep decline since the March 2022 record high.
The chart of natural gas futures for delivery in the Netherlands displays a similar bearish pattern that translated to the falling U.S. natural gas prices.
The war in Ukraine continues
While the warm 2022/2023 winter season caused natural gas prices to plunge, the war in Ukraine continues to rage in April 2023. Russia is using energy exports as a weapon against “unfriendly” countries supporting Ukraine. Therefore, the potential for higher prices over the coming months remains a clear and present danger.
A sudden rally in U.K. and Dutch prices could cause U.S. natural gas futures prices to recover.
While winter is the peak demand season, natural gas is a critical energy commodity that generates electricity. A hot summer would increase the demand and push prices higher over the coming months. While the trend remains bearish, and a test of the June 2020 $1.44 low could be on the horizon, natural gas prices have declined to levels that could create significant bottoms. Russian exports will continue threatening European supplies, increasing the demand for U.S. LNG exports.
Natural gas tends to reach lows in the early injection season, but the market could surprise
Anyone who trades natural gas knows that the price action can be hair-raising. While the U.S. natural gas futures market moved into a bearish pattern of lower highs and lower lows from the 2005 record high to the June 2020 low, the price action in 2022 broke the long-term bearish trend with wild price volatility.
Seasonality favors a continuation of the bearish price action, but U.S. natural gas futures probed above the $10 level in August 2022 and rose steadily from January 2022 through last August.
Meanwhile, as I wrote in late March 2023, natural gas is inexpensive, which does not mean it will not get cheaper. Over the past weeks, $2 per MMBtu has become a pivot point. If the nearby futures can hold above the $2 level, a rally to $3 or higher is possible. However, the $1.44 low and critical technical support level remains the target. The bearish trend that took the energy commodity over 80% lower over the past eight months continues as the market is in the early days of the 2023 injection season. Be careful in natural gas, as seasonality does not always dictate the path of least resistance of prices.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
