US natural gas prices have nosedived to levels not seen in nearly three decades, driven by a combination of record-high production and historically warm winter weather.
With winter months poised to be the mildest on record, heating demand has plummeted, exacerbating the oversupply situation in the market.
The benchmark Henry Hub contracts for March settled at $1.61 per million British thermal units (mmBtu) on Friday, marking the lowest closing price for the month-ahead contract since 1995.
This steep decline, which exceeded 50% since mid-January, reflects the unprecedented imbalance between supply and demand in the natural gas market.
Factors contributing to the price collapse include a surge in US gas production, which hit a record 105 billion cubic feet per day in December, diminishing heating degree days and a global trend of increasingly warm winters due to climate change.
Gas producers are now grappling with the challenge of balancing output levels amidst weak prices, with some indicating plans to curtail drilling programs in response to the market downturn.
The oversupply situation extends beyond the US, impacting global gas markets and driving down prices in Europe and Asia. Traders anticipate that it will take time for the supply-demand imbalance to correct, with little expectation of significant price improvement in the near term.
As the market adjusts to the new reality of abundant supply and tepid demand, stakeholders are bracing for a prolonged period of subdued prices to rebalance the market.