U.S. natural-gas prices have fallen to their lowest level in more than a year just halfway through the winter season.
Natural gas has seen a shaky start to 2023, with U.S. prices falling to their lowest level in more than a year just halfway through the winter season, which is typically a period of high demand for the heating fuel.
There is “nothing unusual in U.S. gas demand versus what we have seen in the past few years,” says Saulius Adomaitis, global oil and gas leader at professional services network EY, pointing out that U.S. prices are “very much affected” by what’s happening outside the country. The war will “continue to restrict supply of natural gas for years to come,” says Michael Rosen, chief investment officer at Angeles Investments. “Alternative supplies are being developed, but it will take years for Europe to replace Russian gas, so price volatility is likely to remain a feature of the market for some time.”
The recent decline in the U.S. dollar, given that natural gas is priced in the currency, contributed to the fall in natural-gas prices, as well, Rosen says. The ICE U.S. Dollar index DXY registered three consecutive monthly declines through December. The “China factor” is something to watch, adds Adomaitis. If China’s economy is really opening up in the second quarter following Covid-19 related shutdowns, and if that “coincides with the need to replenish Europe gas reserves…during spring and summer,” that may lead to a significant increase in gas prices and volatility in Europe—and that would have a “spillover effect” in the U.S.
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