Previous winters still weigh over natural gas price

This year, the Natural gas price is up more than 19 percent and from the bottom made in early March, the price is up close to 70 percent. It is currently hovering around $2.72 per MMBtu. Despite this spectacular bounce back the gas price has been struggling to break above a key resistance around $3 area. This is despite the facts that this year demand has been much higher than its five-year average, especially from the power plants and the average injections have been much smaller than previous years.

And the reason behind that is a higher inventory level thanks to previous two winters. Severe winter in the Northern Hemisphere in 2013 pushed the working gas at the storage to record low of just 850 billion cubic feet. That drop followed higher production. By October 2014, the inventory bounced back from 0.85 trillion cubic feet (tcf) to 3.61 tcf, big jump but the storage level was much lower compared to previous years when the average inventory at the end of October averaged above 3.9 trillion cubic feet. In 2014, winter was moderate that pushed inventory to 1.48 trillion cubic feet by March 2015. By 2015 October inventory has recovered to record 4 trillion cubic feet. 2015 winter was very weak and pushed inventory only to 2.48 tcf by the end of March 2016. This year the injections have been low but inventory levels are at least 12 percent above their 5-year average.

With such levels of inventory, a lot will depend on winter this year. Natural gas may continue to struggle if the winter turns out like last year but a winter like 2013’s would surely push prices over $7 per MMBtu.