The natural gas market is in a near free fall dropping to the lowest spot price level since 1999 in today's late trade.
U.S. December weather is on course to be the warmest on record with daily temperatures 30% above average, 8 degrees higher than normal in the U.S. and 10 degrees higher than normal in the eastern U.S.
There just isn't enough winter heating demand to draw down record high storage and increasing U.S. production.
Three storage injections during November and two withdrawals over the past 2 weeks have kept storage at an inordinately high 3,880 Bcf. Upcoming weather forecasts have turned even hotter than forecasts released earlier in the week pressuring the spot January contract to the $1.800/MMBtu in today's session.
U.S. production increased last week to 71.5 Bcf per day (dry-gas) and is forecast to continue to increase in upcoming months. The natural gas rig count fell to a new all-time low of 185 rigs last week according to Baker-Hughes but has yet to impact production.
All signals are bearish for natural gas including the technical picture, weather-forecasts, and production. But with weakness comes opportunity, particularly for one looking at the longer term picture for the market.
At some point winter demand will arrive which will help stabilize prices. Production may not in fact rise as is currently anticipated with the rig count falling as low as it has. And finally, bankruptcies will only increase in the sector damping production down the road.
Chesapeake Energy Corp, the second largest natural gas producer in the U.S., is currently trading at $3.80 a share, down from $30/share in July 2014. With the spot price trading under $2.000, 2016 could be a year that U.S. shale production could finally be affected.
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