U.S. natural gas futures have breached the $4/MMBTU mark, reaching a two-year high amid a surge in demand fueled by frigid temperatures across the nation.
Prices are currently up over 5%, having pared gains from an earlier rally that saw prices jump nearly 10% at the start of today's session. The price surge is attributed to a sharp increase in gas consumption in recent days, with forecasts indicating the cold snap is set to persist for at least the next two weeks.
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Create account Try a demo Download mobile app Download mobile appExtended Cold Snap: NOAA forecasts predict below-average temperatures across the contiguous U.S. for the next 6-10 days. Source: Bloomberg Finance LP, XTB
Consumption Exceeds Average: Gas consumption has returned to the 5-year range, but remains significantly above the 5-year average. Source: Bloomberg Finance LP, XTB
Inventory Drawdown Expected: The elevated demand is expected to result in a substantial inventory drawdown for the past week, potentially exceeding 200 bcf. Source: Bloomberg Finance LP, XTB
Global Factors Add to Bullish Sentiment
The rally in U.S. natural gas prices coincides with colder temperatures in Europe and reduced gas availability following the halt of Russian gas transit through Ukraine to Southern European countries. Furthermore, the Biden administration's recent sanctions on various Russian entities, including LNG ports, could further bolster demand for U.S. LNG exports to Europe.
Technical Outlook
Natural gas opened with a significant gap to start the week, driven by sustained strong demand. The price is currently testing the upper boundary of an ascending trend channel, with potential support around the $4/MMBTU level. A contract rollover this week is expected to reduce the price by approximately 50-60 cents due to the current steep backwardation in the near-term contract.
Source: xStation5
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