Natural Gas Rises 1%; Prices Turn Negative in West Texas on Supply Glut

Natural gas futures were up more than 1% on Tuesday, but they turned negative in West Texas. The energy commodity has taken a stiff beating since topping $10 at the end of 2022 and then collapsing all the way to below $2, driven by warm temperatures, tepid demand, and rocketing production volumes. It might be years before a bull run is reignited.

May natural gas futures picked up $0.02, or 1.08%, to $1.86 per million British thermal units (Btu) at 18:31 GMT on Tuesday on the New York Mercantile Exchange. Natural gas prices have plunged 20% year-to-date and have shown little evidence that they could breakout above $2.

The US is awash in natural gas right now, with current inventories standing close to 2.3 trillion cubic feet.

The energy sector has been producing around 100 billion cubic feet per day, while demand has slumped on warmer-than-usual winter temperatures. With North America entrenched in spring weather conditions, supply could continue to build in the US.

That said, one energy strategist suggests that there could be some positive momentum for natural gas prices.

“Natural gas seems to have everything against it but the charts look like they’re trying to turn positive,” said Phil Flynn, an energy strategist at The PRICE Futures Group, in an analyst note.

“There is a strong seasonal tendency for the September natural gas to rally over the next month but it’s still facing some incredible hurdles when it comes to the supply side and the lack of winter. This late blast of winter is too little too late to have a meaningful impact but what could have an impact is continued production cuts at some point this comes as the Energy Information Administration touts the fact that the US is the biggest LNG exporter in the world which is a great thing if you want to replace coal around the world.”

Until then, natural gas stockpiles are so immense that they have turned negative in West Texas.

Barron’s reports that the price of natural gas in West Texas dipped below zero, which means producers are paying pipeline operators to take the bridge fuel away.

The issue is that companies are producing too much natural gas while the infrastructure is lacking. On the one hand, this will hardly impact the Permian Baser’s largest producers, such as Chevron and Exxon Mobil, because they generate most of their revenues from crude oil sales. On the other, producers that generate most of their revenues from natural gas, like Chesapeake Energy, could slump.

“Natural gas producers can only hope demand rises soon—either from exports of natural gas or from a cold winter next year. Otherwise, national prices could keep being weighed down by the Texas glut,” Barron’s reported.

In other energy commodities, May West Texas Intermediate (WTI) crude oil futures surged $1.43, or 1.71%, to $85.14 per barrel. June Brent crude futures advanced $1.52, or 1.74%, to $88.94 a barrel. May gasoline futures climbed $0.0482, or 1.79%, to $2.7584 per gallon. May heating oil futures rose $0.0857, or 3.26%, to $2.7127 a gallon.

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