Nat Gas Specs Betting on Supply Disruptions in Europe

Natural gas futures are trading higher early Wednesday, following through to the upside after a strong rebound rally the previous session. Underpinning the market are expectations for even stronger demand for U.S. exports of liquefied natural gas (LNG) as the war in Ukraine ranged on, increasing the possibility of supply disruptions in Europe.

At 03:59 GMT, April natural gas is trading $4.645, up $0.072 or +1.57%.

European Supply Disruption Worries

Natural gas prices in Europe remained elevated Tuesday – as they have for days – amid worries that Russia would scale back supplies to the continent, according to Natural Gas Intelligence (NGI). The price action overseas suggests the bevy of harsh economic sanctions imposed on Russia since last week’s attack on Russia may encourage the rogue nation to respond by cutting of gas supplies to the region.

Additionally, infrastructure damage resulting from Russian bombings and missile strikes on Ukraine could also interrupt gas flows, analysts at Rystad Energy said Tuesday. The increased potential for weaker flows of Russian gas amplifies already lofty calls for U.S. LNG, they said.

“At this moment, a disruption in flows is more likely to stem from damage to infrastructure,” Rystad’s Kaushal Ramesh, senior analyst, said Tuesday. “However, as the situation is evolving rapidly, the risk of disruptions due to sanctions on energy remains a real possibility.”

Short-Term Weather Outlook

According to NatGasWeather for March 1-March 7, “Cool conditions linger across the Upper Great Lakes and New England with lows of 0s to 30s, highs 20s to 40s. However, the rest of the U.S. will be mild to warm with highs of 50s to 80s, although wet over the Northwest.

A brief bump in demand is expected Thursday-Friday as a weather system races across the Great Lakes and Northeast with rain, snow, and lows of 10s to 30s. However, another warm break will cover most of the U.S. this weekend into early next week with widespread highs of 50s to 80s for a return to light national demand.

Overall, national demand will be low the next 7-days.

Early Look at Thursday’s EIA Natural Gas Storage Report

An early peek at the next U.S. Energy Information Administration (EIA) natural gas storage report on Thursday has Bespoke Weather Services projecting a withdrawal of 132 Bcf, while NGI modeled a 91 Bcf withdrawal for the week-ended February 25. NGI’s forecast marked the low end in a preliminary Bloomberg poll that showed a 144 Bcf pull at the steepest end of the range.

According to NGI, utilities withdrew 132 Bcf from storage a year earlier; 98 Bcf is the five-year average pull.

Working gas in storage as of February 18 stood at 1,782 Bcf, the EIA said, more than 200 Bcf below both the year-earlier level and the five-year average.

Short-Term Outlook

Although the weather forecasts may be helping to cap short-term demand, speculators will quickly cast aside this worry if the war in Ukraine escalates and if Russia decides to cut natural gas supply to Europe in response to the bevy of economic sanctions against Russia.

Technically, the main trend is up, but momentum is trending sideways. The support zone at $4.218 – $4.021 has to hold in order to give the market a change to breakout out to the upside.

If the market can gather some momentum then look for a strong breakout over $5.053 with $5.518 the next major upside target level.

A move under $4.021 will be a sign of weakness.