U.S. natural gas prices are rising today due to a combination of weather risk, production softness, and positioning, rather than any single structural shift.
That’s what Ole R. Hvalbye, a commodities analyst at Skandinaviska Enskilda Banken AB (SEB), told Rigzone in an exclusive interview on Wednesday.
“First, the weather premium has kicked in hard,” Hvalbye said.
“Forecasts now show temperatures in the Lower-48 turning well below normal from around January 23 and extending into early February, particularly across the eastern half of the United States,” he added.
“That directly lifts heating demand expectations at a time of year when the market is already sensitive(!). As a result, Henry Hub has surged from … [around] $3 per MMBtu [million British thermal units] last week to nearly $5 per MMBtu intraday today!” he noted.
“Second, supply has tightened at the margin. Lower-48 dry gas production has dipped to around 110.5 Bcfpd [billion cubic feet per day], down from over 112 Bcfpd earlier this week, partly reflecting cold-weather disruptions,” Hvalbye continued.
“At the same time, LNG feedgas demand remains elevated at just over 18 Bcfpd, even though flows at Sabine Pass eased slightly today, partly offset by higher intake at Elba Island,” he stated.
“Third, positioning and short covering are amplifying the move,” Hvalbye highlighted.
The SEB commodities analyst told Rigzone that trading volumes in Henry Hub futures hit a record high earlier this week and added that today’s rally has been pushed by hedge funds covering short positions built up during the recent sell-off.
“That adds momentum once prices start moving,” he pointed out.
Looking at the demand side, Hvalbye told Rigzone that U.S. gas consumption “has eased back toward ~108 Bcfpd from very high cold-weather levels earlier this week” but added that “that hasn’t been enough to offset the weather risk further out”.
“Pipeline exports to Mexico are steady at around 6.4-6.5 Bcfpd, providing a stable demand floor,” he said.
Summing up, Hvalbye told Rigzone that “in short, this is a classic winter squeeze”.
“Colder weather into late January/early February, some production softness, and aggressive short covering in a market that was leaning bearish just days ago,” he highlighted.
“The speed of the move looks dramatic, but it’s still largely weather and positioning driven rather than a change in long-term fundamentals,” he said.
In a separate exclusive interview on Wednesday, Phil Flynn, a senior market analyst at the PRICE Futures Group, told Rigzone, “just when you thought winter was over … this bitter cold … blast and polar vortex is threatening to shut down production and create big inventory draws”.
“The sustainability of the cold seems to suggest that we’re going to see a real impact on production and it could be for an extended period of time,” he warned.
Rigzone has contacted the American Petroleum Institute (API) for comment on Flynn’s statement. At the time of writing, the API has not responded to Rigzone.
In another exclusive interview with Rigzone today, Art Hogan, Chief Market Strategist at B. Riley Wealth, said a combination of colder weather and short covering is moving U.S. natural gas higher.
“The immediate driver is the weather,” Hogan told Rigzone.
“Forecast models over the past 48 hours flipped decisively colder, showing a sustained Arctic outbreak in the Midwest and Northeast into late January,” he added.
“That matters because heating demand had already been running above normal, and storage levels entered the heart of winter thinner than many had assumed after a mild December,” he continued.
“When the weather outlook hardened, short positions became untenable. Funds that had been leaning bearish on expectations of ample supply and manageable winter demand were forced to cover quickly,” he said.
“The result was a price spike that followed a familiar winter pattern: demand surprises first, storage anxiety second, panic buying third,” Hogan went on to state.
Hogan told Rigzone that U.S. inventories “are not critically low” but added that “they are no longer comfortably padded either”.
“Weekly withdrawals have accelerated just as LNG export facilities continue to pull gas out of the domestic system at near-record rates,” he said.
“Feedgas demand remains strong, leaving less flexibility when residential and power-sector demand increase at the same time,” he added.
In an EBW Analytics Group report sent to Rigzone by the EBW team on Wednesday, Eli Rubin, an energy analyst at the company, highlighted that the February natural gas contract “logged its best single day gain since 2022 yesterday” and added that it “may repeat the performance as extreme cold sends it spiking”.
“The February contract’s $1.50 per MMBtu gain in two days – when the coldest days of the forecast are in January – highlights the extent of short covering as speculators rebalance from the largest short position in 14 months,” Rubin noted in the report.
EBW’s report highlighted that the February natural gas contract closed at $3.907 per MMBtu on Tuesday. It outlined that this was an 80.4 cent, or 25.9 percent, increase from Friday’s close. Monday was a federal holiday in the United States.
In a media advisory sent to Rigzone late Tuesday by the AccuWeather team, AccuWeather warned that “a major winter storm is expected to bring dangerous ice and snow impacts to more than 150 million people across more than two dozen states starting Friday and through the weekend”.
“Severe, long-lasting ice impacts are possible across parts of Texas, Louisiana, Arkansas, Mississippi, Alabama, Georgia, South Carolina, and North Carolina,” the advisory said, adding that “risk of snow extends from the Plains and south-central U.S. through parts of the mid-Atlantic and Northeast Friday through the weekend, with a foot or more of snow possible in some areas”.
The advisory went on to warn that a “blast of dangerously cold air will bring some of the lowest temperatures so far this winter to parts of the northern and central U.S. later this week”.
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