U.S. natural gas futures’ plunge to a 17-year low is as simple as Economics 101: too much supply, not enough demand.
The biggest gas stockpile glut in four years illustrates how mild weather and surging production have saddled the market with more of the fuel than it can absorb. And with spring just around the corner, the surplus is set to expand, prolonging the rout.
As futures collapse, gas drillers have become more efficient, spending less to squeeze more molecules out of the ground. Even as the number of rigs drilling for the fuel drops to the lowest since at least 1987, output keeps climbing to a record amid rising supply from shale basins.
Then there’s the issue of weak demand. The brutal cold that gas bulls were hoping for didn’t last, leaving the surplus intact as mild weather curbed demand for the heating fuel. U.S. gas consumption so far this winter has been the lowest in three years, data from PointLogic Energy show.
The result: an inventory glut that has expanded for four straight weeks, sending futures tumbling. Barring a summer of blistering heat, the oversupply will linger into late 2016, keeping prices capped.
Gas futures for March delivery, which expired Thursday, settled at $1.711 per million British thermal units on the New York Mercantile Exchange, the lowest close since March 19, 1999. The April contract slipped 3.6 cents to $1.749 at 11:20 a.m. Friday. Prices are down 25 percent this year.
“This is the stockpile situation that bulls were dreading,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “Gas prices are very low, but all signs point to futures continuing to fall.”