Why is natural gas crashing? What does it mean US dollar?

Natural gas price nears historic low under 1.800

Natural gas futures have approached a historic low, trading below 1.800 in recent weeks. This price is less than 30 cents away from a 20-year low for the commodity. This significant dip highlights the volatility and market trends in the energy sector, underscoring the susceptibility of natural gas prices to broader economic forces and shifts in supply and demand. Traders and analysts closely monitor such movements, understanding their implications for both the energy market and related investment opportunities.

Natural gas market in oversupply

The natural gas market has hit an oversupply, with US natural gas production reaching an unprecedented 125 billion cubic feet per day (Bcf/d) in 2023. This all-time high in production contributes to the current low price environment, reflecting advancements in extraction technology and the expansion of natural gas projects. Such an oversupply situation influences global natural gas prices and directly impacts countries dependent on natural gas exports.

US dollar and commodities negatively correlated

Historically, the US dollar and commodities like natural gas and crude oil have shown a tendency to move in opposite directions. This negative correlation means that as the USD strengthens, commodity prices often decrease, and vice versa. However, this correlation has been weaker in recent months, with USD moving almost completely independently of such commodities.

US dollar appreciates amid natural gas weakness

Amid the weakness in natural gas prices, the US dollar has appreciated, rising in value against most major forex pairs in 2024. This appreciation reflects the intricate relationship between the commodities market and currency values, where changes in energy prices can influence investor sentiment towards certain currencies, particularly those from commodity-exporting countries.

How low can natural gas prices go?

With natural gas typically exhibiting low volatility during the summer months, there’s speculation that the current low prices could persist. Factors such as weather patterns, storage levels, and changes in consumption rates will play crucial roles in determining how long these prices last. Traders and energy analysts will need to closely observe these factors, including broader economic indicators, to estimate future price movements and market conditions.