The Oil Drum: Europe

This post will provide a graphical update on what has been a roller coaster ride in the natural gas market over the past 12 months, and a steep plummet of late. Natural gas prices have dropped by 50% in the last month, and over 70% from their highs earlier in the year. The warmest winter on record and not a single rig-damaging hurricane have combined to create record gas in storage, thereby reducing price demand for the marginal unit. Yet, production is flat with last year despite significant more drilling and rigs allocated to the commodity. The current situation is thus one of short term plenty and long term supply concern. If longer term predictions of reduced supply and accelerated well depletion are correct, we should be seeing some of the major producers reduce rig counts at these levels, or shut-in their production with intent to sell it higher in the future. This post examines the supply/demand equation for natural gas in the US, the NG futures strip, and the implications going forward of higher price volatility in this important commodity.