Natural Gas Prices Crashing Amid Warmest January In 15 Years—Here’s How Bad Bear Market Could Get

Topline

Natural gas prices extended a months-long decline on Monday—falling to the lowest level in nearly two years as analysts expect the unseasonably warm winter could continue to depress the market for natural gas in the coming weeks, ultimately keeping prices below recent highs for at least another year.

Key Facts

U.S. natural gas prices fell 5% to less than $2.70 Monday morning—pushing losses more than 72% below an August high of roughly $9.70 and at one point hitting what would be the lowest closing price since April 2021.

“The next U.S. gas bearish cycle is here,” Goldman Sachs analysts led by Samantha Dart wrote in a weekend note to clients, noting an “exceptionally warm” January—with average temperatures at the highest level in 15 years—has helped dissipate winter-related risks to supply and push prices down by more than 50% over the past month alone.

Though the analysts acknowledge the selloff appears “overdone,” particularly with higher gas demand expected over the coming weeks, they still believe warmer weather forecasts or disappointing demand could push gas prices further down.

With supply expected to remain healthy, Goldman ultimately projects prices could fall below $2 and remain in a bear market through at least next summer, keeping prices below $3.85 and likely not going back above $4 until 2025.

Key Background

As more power plants phased out coal use, natural gas prices skyrocketed during the pandemic—more than quadrupling between April 2020 (when prices fell below $2 amid another unseasonably warm winter) and August 2022. However, the soaring demand has also helped bolster production to record levels, helping to fuel the sudden collapse in prices over recent months. Goldman notes one scenario that could push prices down further: If Europe, which has also faced a warmer-than-average winter, becomes so over supplied with gas this year, it may be forced to lower prices so much that U.S. liquefied natural gas exports get canceled—similar to what happened when U.S. prices plummeted in 2020.

Crucial Quote

“Warmer-than-average temperatures across much of the country is suppressing heating demand, domestic production remains at record highs, and inventories are seasonably healthy,” explains analyst Tom Essaye, founder of the Sevens Report, of the recently collapsing market for natural gas.

Further Reading

Why Natural Gas Prices Quadrupled In Two Years (Forbes)

Analysts Remain Bullish On Oil Prices Despite Looming Headwinds (Forbes)