A warm fall is dragging natural gas prices down to their lowest levels in three years as the Henry Hub price fell below the $2.00 per million Btu (/MMBtu) threshold. While prices can be expected to improve in the near term, Barclays Capital warned this week could be a sign of things to come.

“Although the market knew the bearish signals were present, high storage levels, new Northeast supply and the potential for a mild winter, the fact a sell-off happened this close to winter wrong-footed some. The winter should bring the market some respite, but the October sell-off may have provided a taste of what’s to come in spring 2016,” the investment firm said in its November 2 Natural Gas Outlook.

The headwinds facing natural gas prices have been known for months, but they came to a head this past week with the mild temperatures with the likelihood that storage levels will continue to build much later than normal.

According to PIRA Energy Group, this sell-off is in anticipation of a “storage crisis” in the producing region due to capacity constraints and high storage carries. “With a threadbare margin available to avoid extreme congestion and a related meltdown of Henry Hub prices, the past month’s mild weather, and more of the same expected for November have been more than the market could handle. Consequently, the past week’s Henry Hub price…should not be perceived as an ‘out of the blue’ shock,” the firm said in a research note.

Despite the negative outlook for heating and crop drying demand, propane prices improved at both Conway and Mont Belvieu as propane prices are increasing in Europe and Asia. In addition, En*Vantage reported that export arbs are widening as transport costs decrease with the addition of new VLGC (very large gas carrier) ships are being brought online.

Of course, these positives are still battling the major headwind - record storage levels. Even as LPG exports increase with new capacity coming online, overhangs will not be worked off during this winter. This will put the propane market in much the same boat as natural gas once the spring arrives as the market will be severely oversupplied.

Along with propane, other NGL prices were improved across the board with the exception of ethane, which was down on the news that the U.S. Energy Information Administration (EIA) reported an increase in ethane stocks in August. This was the most recent data available and was a surprise that EIA reported an increase given that there had been a decrease in storage levels the previous month and ethane crackers were running at 95% of total capacity.

En*Vantage speculated that this build could have come from ethane being sold from petrochemical companies’ private inventories. However, the volumes that would be necessary for such a large build would have disrupted prices and ethane has held firm for several months.

Heavy NGL prices experienced gains along with crude, which helped to increase the theoretical NGL barrel (bbl) at both Conway and Mont Belvieu. The price at Conway rose by 3% to $18.92/bbl with an 8% gain in margin to $11.51/bbl. The Mont Belvieu price improved by 2% to $19.61/bbl with a 6% gain in margin to $12.12/bbl.

The most profitable NGL to make at both hubs remained C5+ at 78 cents per gallon (/gal) at both hubs. This was followed, in order, by isobutane at 42 cents/gal at Conway and 40 cents/gal at Mont Belvieu; butane at 36 cents/gal at Conway and 39 cents/gal at Mont Belvieu; propane at 22 cents/gal at Conway and 24 cents/gal at Mont Belvieu; and ethane at 3 cents/gal at Conway and 5 cents/gal at Mont Belvieu.

Natural gas storage levels for the week of October 30, the most recent data available from the EIA, rose by 52 billion cubic feet to 3.929 trillion cubic feet (Tcf) from 3.877 Tcf the previous week. This was 10% greater than the 3.558 Tcf posted last year at the same time and 4% greater than the 3.782 Tcf five-year average.

This injection level was on the low end for the past month, but are still high for a time of year that typically experiences storage withdrawals. Much of this is due to the warm temperatures that have pushed back heating demand season around the country. According to the National Weather Service, heating season will continue to be pushed back the week of November 11 as the agency is forecasting warmer-than-normal temperatures in much of the nation.