Natural gas prices tumbled by 62% in the US last year, as production surged past demand.

The drop in gas prices boosted the exports of US liquefied natural gas and reduced the costs of in-house heating, creating more disposable income. 

And indeed, the US labor statistics office said that the drop in natural gas prices played an important role in boosting economic performance and raising cash reserves, which were used on other products and services. 

The drop in natural gas prices also means a drop in the costs of fertilizers sometime in the future, which could lead to lower food prices. 

Some analysts warn that lower natural gas prices could make the production of the gas uneconomic, especially as most of the output growth last year came in the form of gas accompanying oil wells.

For oil operators, producing the gas costs next to nothing, but for dedicated gas operators, it’s a blow. 

EQT, the largest gas producer in the US, recently announced plans to strategically reduce production in response to prices, starting with 7-8% reductions in February. 

However, the modest cuts in production won’t quickly affect prices quite yet, as natural gas futures still trade at below $2 per million British thermal units. 

It seems that traders have already priced in the upcoming expected decline in gas production in the US.

Reuters recently reported that total natural gas production in the US fell by 7% in February, however prices fell by nearly 27% in the first two months of the year, especially as demand declines and the weather warms up. 

Most US stock indices advanced early on Tuesday ahead of the important Federal Reserve’s policy meeting this week. 

The Fed will open its two-day policy meeting later today to discuss latest inflation data which continued to prove resilient. 

Tomorrow, the Fed will announce its results, with Fed Chair Jerome Powell holding a subsequent press conference to discuss the decisions. 

There’s a 99% chance that the Federal Reserve will hold interest rates unchanged according to the Fedwatch tool.

Earlier government data showed housing starts surged by 10.7% m/m in February, and by 5.9% y/y.

Building permits rose by 1.9% m/m last month, and by 2.4% y/y. 

On trading, Dow Jones rose 0.5%, or 197 points to 38,985, while S&P 500 rose 0.1%, or 2 points to 5151, as NASDAQ shed 0.3%, or 41 points to 16,061. 

Global oil prices fell in European trade for the first time in five sessions off four-month highs on active profit-taking while the dollar gains ground.

Traders await initial data on US crude inventories from the American Petroleum Institute, expected to show a decline for the second straight week.

Global Prices

US crude fell 0.4% to $81.83 a barrel, while Brent shed 0.5% to $86.51 a barrel.

On Monday, US crude rallied 1.45%, the fourth profit in a row, marking a four-month high at $82.46 a barrel, while Brent rallied 1.9% to $87.15, the highest since November 2023. 

The strong gains amid concerns about supply disruptions from Russia as Ukraine intensifies its bombardment of Russian energy infrastructure, and with hopes for improving Chinese demand after strong industrial production data.

The Dollar 

The dollar index rose 0.4% on Tuesday on track for the fourth straight profit, hitting a three-week high at 104.06 against a basket of major rivals.

A stronger dollar weighs on prices of greenback-denominated  commodities as they become costlier to holders of other currencies. 

Dollar’s gains come as US 10-year treasury yields rally as well ahead of the Federal Reserve’s policy decisions this week, expected to maintain interest rates unchanged at 2001 highs.

US Stocks

The American Petroleum Institute will release initial data on US crude stocks later today, expected to show a drawdown for the second week in a row. 

Dollar rose in American trade on Tuesday against a basket of major rivals, extending gains for the fourth straight session and hitting a three-week high amid a new influx of investments.

The Bank of Japan just today voted to exit negative interest rates, which convinced markets that the Federal Reserve will maintain its US policy tools constrictive for an extended duration.

The Index 

The dollar index rose 0.45% to 104.06, the highest since March 1, with a session-low at 103.58, after closing up 0.15% yesterday, the third profit in a row as US yields edge up. 

US Yields

US 10-year treasury yields rose by 0.3% on track for the seventh profit in a row, hovering near four-week highs at 4.348%. 

The developments come after recent inflation data showed that Fed interest rates will likely remain high for longer than expected. 

Fed policymakers have repeatedly insisted that changing policies will solely depend on data that proves inflation is sustainably heading towards 2%. 

The BOJ

Bank of Japan voted to end eight years of negative rates today, making it the last bank to exit the unusual territory. 

The BOJ’s policies remain accommodative, with interest rates now at zero percent. 

Otherwise, the Reserve Bank of Australia voted to hold interest rates unchanged at 12-year highs as the fight with stubborn inflation continues.

US Rates

The odds of a US 0.25% interest rate cut in May stand at just 8%, and 55% for June.

Traders are pricing in 75 basis points of total US interest rate cuts this year. 

The Fed

Later today, the Federal Reserve will open its two-day policy meeting, expected to maintain interest rates unchanged at 5.5%, the highest in 23 years.

The Fed’s policy statement and Fed Chair Jerome Powell’s subsequent press conference will likely provide important clues on the future of US interest rates.