Mild Winter Eases Gas Prices

Demand Drops

The US price of natural gas is down 40% so far in 2023. In Europe, where natural gas prices hit an all-time high in August 2022, the price has fallen drastically.

Natural gas, used to heat homes and generate electricity, accounts for around 25% of US residential needs. In other words, this is a major relief for consumers, who experienced a dramatic surge in the cost of living last year due to the global energy crisis initiated by Russia’s invasion of Ukraine, along with record-high inflation rates.

On the flip side, this past winter was much warmer than expected in the US and Europe. This reduced demand for gas, leading to the subsequent decrease in price.

Domestic Supply

In the US, natural gas is primarily extracted from shale deposits in two states: Texas and Pennsylvania. When demand rapidly increases, it can quickly put pressure on these deposits, causing prices to soar.

However, that has not been the case this year. Inventory levels are expected to end the month 16% higher than the 5-year average.

Looking Forward

For this upcoming winter, the Energy Department anticipates the average heating bill for households using natural gas will rise 12%. While this may still sound like a lot, it’s down dramatically from the 28% increase the department forecasted last October.

The rising price of natural gas was a major driver behind last year’s inflation rates, which were among the highest seen in decades. This means that the fall in prices could be seen as a positive sign not just by consumers, but by the Federal Reserve. The central bank has committed to its campaign to raise interest rates until it is confident inflation is trending steadily downward.

This may not be the sure sign they’re searching for — but it appears to be another step in the right direction.

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