Natural Gas Prices Are Crashing

Flickr / Tim Evanson

Natural gas prices fell to a two-year low in trading on the New York Mercantile Exchange on Monday.

Futures prices tumbled up to 9.9% to the lowest level since January 2013, according to Bloomberg's Christine Buurma. Futures fell as low as $3.14 per million British thermal units. Prices have declined 26% this year.

Temperatures have been above average this month, and much of the country is forecast to be warmer than usual through New Year's Eve, Buurma reports. This has increased the inventories of natural gas on a year-over-year basis.

It's leading investors to reduce bets that prices will rise. During last year's polar vortex, natural gas prices surged and the Energy Information Administration (EIA) saw the largest withdrawals from inventories in 20 years.

There'll be less need demand for gas for heating this year. Coupled with this is the fact that US gas production is booming in the US. The EIA forecasts that gas production this year may increase 5.5% to a record 74.26 billion cubic feet per day. 

RBC Capital Markets slashed its forecast for natural gas prices last week. A team of analysts led by Leo Mariani wrote: "We think North American natural gas fundamentals are somewhat fragile going into 2015, and could remain challenged for the next 12-18 months on robust supply."

Here's a chart showing the gradual drop in prices through December:

FinViz