Natural Gas Prices Forecast: Will Arctic Blast Propel Further Increases?

Key Points

• Natural gas futures rise 14.52% due to severe cold.
• High demand outpaces ‘available supply’ of natural gas.
• Market outlook bullish amid weather-driven volatility.
• Weather markets start fast and end fast. 

Natural Gas Futures Continue Upward Trend Amid Harsh Winter Conditions

Natural gas futures experienced another week of significant gains, driven by a combination of severe winter conditions and ongoing supply concerns. As traders handle these volatile markets, their focus is primarily on the latest weather forecasts and the levels of gas storage.

Weather-Driven Volatility

Over the past week, natural gas futures escalated to $3.313, marking an increase of 14.52%. This rise was predominantly fueled by subzero temperatures, leading to a strong demand for heating.

The impact of the freezing weather across the Lower 48 states was evident, as it led to a surge in natural gas cash prices. Continued wintry conditions are expected, raising concerns about potential supply disruptions, especially in areas most susceptible to extreme cold.

EIA Report and Supply Trends

The recent report from the Energy Information Administration (EIA), indicating that natural gas storage levels are higher than the five-year average, suggests a substantial reserve. However, this has not translated into a reduction in the upward pressure on prices.

A crucial factor is the ‘available supply,’ which refers to the amount of natural gas that is not only in storage but also efficiently accessible and distributable to meet the current market demand. This encompasses the effective operation of transportation and distribution networks and the capacity to manage challenges like production curtailments.

Current Demand Outstripping Supply

The market currently faces a situation where the demand for natural gas, heightened by the need for heating due to the cold weather, exceeds the readily accessible and distributable supply.

This imbalance is further aggravated by production challenges, such as freeze-offs in cold temperatures that obstruct gas extraction, thus limiting the volume of natural gas that can be swiftly supplied to the market, thereby contributing to sustained high prices.

Outlook on Supply and Demand

Despite high storage levels, the demand for natural gas continues to be strong, fueled by the ongoing cold spell across the U.S. This demand is anticipated to climb further in the short term, potentially surpassing the record highs seen during Winter Storm Elliott in December 2022.

Traders are actively monitoring the balance between supply and demand, looking 10-14 days ahead for indications of milder weather, cognizant of the rapid pace at which weather markets can change.

Weekly Forecast and Market Sentiment

In the short term, the natural gas market’s outlook appears bullish. Should the weekend bring harsher weather than anticipated, there is a likelihood of a price gap higher at the beginning of the week. On the other hand, if milder weather is forecasted, a gap lower could be triggered, as traders are already bracing for a shift in weather patterns.

This situation highlights the market’s sensitivity to immediate weather changes, underscoring the notion that weather markets can start and end quickly. Traders remain alert, prepared to respond to any signs of changing weather conditions and their subsequent impact on natural gas demand and supply.