Natural Gas Outlook 2016 - Prices to Stay Down on Oversupply

Oil & Natural Gas / Gas Shales / Economics

Date posted: 12/23/15

Vivien Diniz reports that natural gas prices sank to a 16-year low in early December, with the spot price for U.S. Henry Hub checking in at $1.62 per million British thermal units (mBtu), meanwhile, in New York, natural gas futures were down at $1.734 per mBtu. Overall, 2015 has not been kind to the energy sector. In fact, as Zacks points out in a recent article, the free-fall in oil prices have made energy the most talked-about sector of the entire market in 2015. That said, natural gas prices were not faring too poorly early on in 2015. Indeed, as Bidnessetc recently highlighted, gas prices were in their normal range in August. However, as with oil, the booming shale gas business in the U.S. has served to dramatically boost domestic natural gas reserves. In fact, as 2015 entered its final quarter, natural gas prices slid on worries over the supply and a large amount of inventories on hand. In November, supplies hit their highest-ever recorded figure of 4.009 billion cubic feet (Bcf). U.S. natural gas storage now stands at 3.956 trillion cubic feet, according to Investing.com. That represents a 13.7% increase from levels seen during the same period last year, and is 6.2% above the five-year average for this time of year. Last spring, supplies were 55% below the five-year average, indicating producers have more than made up for all of last winter unusually strong demand, Investing.com states. Shale gas extraction is not the only reason natural gas inventories are running high. In the winter months, investors can generally expect higher natural gas prices as consumers turn up the heat to stay warm. However, 2015 is proving to be a year of warmer temperatures, and that has further raised oversupply concerns. According to Bloomberg analyst Andrew Cosgove, the outlook for natural gas is still very persistent high production and we have not have the pull on the demand side weather this year either. The analyst also said that industrial demand is still high.