Unseasonably warm weather coupled with higher output from shale fracking operations have created a glut in U.S. natural gas, sending commodity futures and natural gas exchange traded funds on a steady decline. The trend is continuing, with natural gas prices hitting a new decade low as futures dipped below $2 Wednesday.
U.S. Natural Gas Fund (NYSEArca: UNG) was down 2.2% at last check Wednesday.
Natural gas prices have plunged 59% since its peak at $4.85 per 1,000 cubic feet last summer, reports Chris Kahn for the Associated Press.
On Wednesday, natural gas dropped to $1.999 per 1,000 cubic feet – prices have not been below $2 since January 28, 2002.
“There’s nothing that’s out there right now that can push this higher,” Scott Gettleman, an independent gas trader at the Nymex, said in a Wall Street Journal article.
Around half of Americans use natural gas to heat their homes during the winter months, but there was essentially no demand over the unseasonably warm winter, one of the mildest on record. [Warm Weather Saps Natural Gas ETFs]
Meanwhile, suppliers have not curtailed natural gas output, even in spite of falling prices, as production usually goes hand-in-hand with crude oil and other natural-gas liquid operations – liquids like ethane, propane and butane are used to produce plastics and other products.
The U.S. Energy Information Administration has previously revealed that output in the lower 48 states hit a record high of 72.85 billion cubic feet a day in January. Inventories are at 2.479 trillion cubic feet, their highest level for this time of year, or 60.5% above the average.
In recent weeks, natural gas speculators have been paring bets on lower gas prices. The Commodity Futures Trading Commission said speculators have reduced their “net short” position 16.6% over the week ended April 6.
Interestingly, the natural gas exchange traded note, iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSEArca: GAZ), was up 4.2% Wednesday. It should be noted that the ETN has stopped new share issuances, which makes the fund essentially trade as a close-end fund with a premium of 92.65%. [Natural Gas ETN Premium: Don’t Get Stepped on by GAZ]
U.S. Natural Gas Fund
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Max Chen contributed to this article.