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Natural Gas Prices Staying Well Below $2 Mark

The April natural gas contract, which became the prompt month today, had been trading down $0.07 at $1.77 early this morning. On the news, it dropped even further and is now trading at $1.74, down ten cents from yesterday’s settle. The prompt month crude oil contract is down $1.78 at $46.95. The U.S. Energy Information Administration reported that natural gas storage inventories were 2,200 Bcf as of Friday, February 21, 2020. This represents a net decrease of 143 Bcf from the previous week. The reported withdrawal of 143 Bcf is below the estimated 158 Bcf but within the range of 131-175 Bcf. Today’s storage withdrawal is expected to settle somewhere between 161 and 158 Bcf. Stocks were 637 Bcf (41%) higher than this time last year and 179 Bcf (9%) above the five-year average of 2,021 Bcf. At 2,200 Bcf, total working gas is within the five-year historical range.

The Dow Jones Industrial Average fell nearly 1000 points this week, due to the news of the coronavirus outbreaks in several countries outside China, according to the Wall Street Journal. The spreading of the virus to Australia and Europe likely brought on the wave of selling. As of now, there are 79,000 confirmed cases reported with 2,600 deaths reported. South Korea also reported cases of the virus. Asian economic growth is negatively impacted, and it is still unclear what the real effects of the coronavirus will have on the global economy. The coronavirus can impact global energy demand for manufacturing because South Korea and China play a big role in making components for final products.

Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas-fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production has grown and surpassed any speculation that production would not be able to keep up with demand due to LNG and Mexican exports.

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