Natural gas just crashed to a 16-year low

The plunge in natural gas prices appears to be related (for real this time) to the warmer-than-usual weather. But warmer temperatures throughout the autumn and early winter due to the El Niño weather phenomenon has reduced heating demand, underlining concerns over a deepening supply glut.

Nearly half of homes in the nation use natural gas for heat, while only about 5% use heating oil.

Gas prices are slumping amid record-breaking warm temperatures in the eastern U.S. Gas futures for January delivery fell 7.2 cents, or 3.8 percent, to $1.822 per million British thermal units on the New York Mercantile Exchange Tuesday, the lowest settlement since March 24, 1999.

That compares with a drawdown of 76 billion cubic feet in the prior week, 76 billion cubic feet in the same week last year, while the five-year average change for the week is a decline of 79 billion cubic feet.

Gas is one of the worst-performing commodities in the Standard & Poor’s GSCI index this year as mild weather limits heating demand in the U.S. East, leaving the biggest stockpile surplus since 2012 intact.

Add to that there are forecasts of a much milder winter in most of the country. The S&P 500 Energy Index, which includes oil and gas producers, is down 22 percent this year.

“This is the ideal storm to drive natural gas prices down to where they are now”, said Nicholas Potter, natural gas analyst with Barclays.

Chesapeake Energy Corp.’s stock fell to a 15-year low, while shares of Southwestern Energy Co. and Devon Energy Corp. both fell to 11-year lows. This is counter to industry expectations of fuel prices climbing in the winter heating season.

Jim Bartling, a spokesman for Atmos Energy, agreed that low gas prices are good news for his utility’s 90,000 customers in Johnson, Wyandotte, Miami and Douglas counties. “We’ve got way, way too much supply and not enough demand”, Lammey said.