Natural gas is the worst performer this year on the Standard & Poor’s GSCI Index of 24 commodities– down 39.2% year-to-date. However some analysts now say that prices may finally be due for a correction,due to cuts in production and a rise in demand from other quarters, such as power generation.
Natural gas futures gained about 3% in morning trading today, after 5.2% gain in price yesterday.
The Department of Energy's weekly inventory report for the week ended April 20, 2012, showed that natural gas in storage rose by 47 billion cubic feet to 2.548 trillion cubic feet.
The report was in-line with market expectations; however, the report also revised previous four weeks’ data downward.
Despite the downward revisions, inventories are still 52% above last year's level at this time of year, and 55% above the five-year-average level.
Unusually warm winter (fourth warmest in last 117 years) and increased domestic production led to glut in inventories and prices falling to their lowest level in 10 years.
As a result of drop in prices, some of the largest natural gas producers announced plans to slow down production. Production cuts have reduced the chances that gas storage faculties would be full before winter.
On the other hand, demand for gas from power plants is expected to rise 16% this year as many plants are now switching from higher priced coal.
Do you think natural gas prices have finally bottomed out?