Source: Golden Ten Data
The US energy market is in both hot and cold weather.
Natural gas prices at the Waha hub in the Permian Basin in Texas fell to $2.00 per million British thermal units this week as recent increases in oil prices prompted producers to put drilled but unfinished wells into production, according to OilPrice.
As the US benchmark WTI crude oil price reached a six-month high of $85 per barrel, producers in Texas continued to increase crude oil extraction, but their oil wells also produced natural gas, which had almost nowhere to go.
While producers are seeking higher crude oil monetization, they are further curbing the already sluggish US gas market. The US gas market has been oversupplied in recent months due to mild winters and falling demand for heating and electricity. America's current natural gas reserves are almost 40% higher than the five-year average.
Producers in West Texas have been hit by falling gas prices at the Waha hub, which meant they had to pay someone to take the gas, but demand simply wasn't there.
Dennis Kissler, senior vice president of BOK Financial Securities, told the media: “Due to rising oil prices, they are putting these unfinished drills into use. The market is also full of natural gas, but there is no demand.”
In most parts of the US, the air conditioning season is only a few weeks away, when it is expected to stimulate a recovery in demand. As a result, there isn't much exciting news for gas bulls in the short term. If negative prices persist or deepen, oil companies may reconsider whether it is worth spending additional money to process their natural gas by-product in order to extract more crude oil.
However, there are signs that an oversupply of natural gas may have begun to hinder drilling in parts of the Permian Basin.
Analysts and business executives told Reuters earlier this month that although oil prices have hovered at a six-month high, US oil producers are in no hurry to drastically increase crude oil production, as low natural gas prices and rising costs have put pressure on the industry over the years. US oil producers are also taking note of investors' demand for higher returns, not necessarily higher production.
“Natural gas is currently priced at or below production costs,” an executive at an exploration and production company said in the latest quarterly “Dallas Fed Energy Survey” (Dallas Fed Energy Survey) released at the end of March.