Low Spring Demand to Push Natural Gas Prices Lower

The Wall Street Journal reported that natural gas prices dropped to their lowest level in nearly three years as weather forecasts suggest spring could bring the weakest demand in more than a decade.

As quoted in the market news:

Prices for the front-month May contract declined 4.1 cents, or 1.6 percent, to $2.49 a million British thermal units on the New York Mercantile Exchange. Trading on the June contract surpassed May. May options expired at close and futures expire Tuesday. The June contract declined 5.4 cents, or 2.1 percent, to $2.514/mmBtu.

May’s settlement is lowest since June 15, 2012. Prices were down more than five cents as soon as electronic trading began Sunday evening, but did pare some of those losses in the afternoon.

A Sunday-evening plunge is often a sign that weather updates are the dominant factor in trading. Traders, especially those using automated computer systems, will often have immediate, strong reactions to weather updates when they come after two days off and can’t be priced in gradually as they usually are during the rest of the week.

Most gas consumption goes to heat homes or run power plants, which have their highest demand when air conditioners are running in hot weather. That makes weather the biggest variable for gas prices, which often plunge as comfortable spring weather kills demand.

Click here to read the full Wall Street Journal report.