In separate exclusive interviews with Rigzone on Tuesday, Phil Flynn, a senior market analyst at the PRICE Futures Group, and Art Hogan, Chief Market Strategist at B. Riley Wealth, explained today’s U.S. natural gas price drop.
“Natural gas is pulling back after the worst of the cold has passed,” Flynn told Rigzone.
“We’ve lifted some of the winter storm warnings, and this should allow some of the freeze-offs in the basins to get production back up,” he added.
“We saw [a] significant drop in production because of the cold weather and now some of that will be coming back online,” he continued.
In his interview with Rigzone, Flynn warned that the weather is still going to be “key”.
“Some forecasters are predicting a warm-up, but then after that another blast of the cold,” he said.
“If that’s the case … these huge moves in natural gas may be far from over”, Flynn told Rigzone.
He added, however, that, “at least in the short term, [a] return to more moderate temperatures from what we had experienced should allow for the market to recover as far as production goes, and exports”.
When he was asked to explain the U.S. natural gas price drop today, Hogan told Rigzone that “trees don’t grow to the sky”.
“U.S. natural gas prices dipped today amid profit-taking by traders, after soaring by over 117 percent in the five days to Monday,” he said.
“The benchmark jumped by 30 percent on Monday alone. Last week, gas prices went up by as much as 70 percent amid frigid weather that apparently took gas traders by surprise,” he added.
“This surprise led to frantic short-covering and position exits at a hefty loss. Currently, natural gas is trading at over $6.60 per million British thermal units [MMBtu], which is the highest in four years and up from around $3 per MMBtu in December,” Hogan stated.
“Profit-taking has removed some of the momentum from natural gas markets, but the fundamental drivers of this year’s move higher will likely remain in place,” he went on to note.
In a gas-focused EBW Analytics Group report sent to Rigzone by the EBW team on Tuesday, Eli Rubin, an energy analyst at the company, warned that “extreme price volatility will endure as physical prices blast higher on frigid cold and extensive production freeze-offs near 16 Bcfpd [billion cubic feet per day] – driving a rush of eight Bcfpd of price-induced LNG curtailments to offset roughly half of lost supply”.
“The February contract soared to $7.439 – up $2.16 per MMBtu – before returning $1.20 per MMBtu into this morning. February options expiry today and final settlement tomorrow add to volatility tailwinds,” he added.
Rubin noted in the report that physical spot prices “tore higher”.
“Henry Hub averaged $30.57 per MMBtu, Chicago City Gates averaged $66, Southeast regional pricing averaged $85, and Algonquin City Gates and TETCO M3 each averaged $123,” he highlighted.
“These exceptional prints are reframing trader risk assessments as fear drives breathtaking upside,” he added.
The EBW energy analyst said in the report that weather driven gas demand will retreat 23 Bcfpd over the next ten days and added that production “should rebound 12+ Bcfpd”.
“Short-term technicals are less supportive after yesterday’s spike and retreat,” Rubin noted.
“Immediate-term physical prices may stay sky-high and risks remain huge in coming days – particularly with increasing mid-February cold forecasts,” he added.
The EBW report highlighted that the February natural gas contract closed at $6.800 per MMBtu on Monday. It outlined that this was up $1.525, or 28.9 percent, from Friday’s close.
In Tuesday’s report, EBW predicted a “historic cold elevates uncertainty” trend for the NYMEX front-month natural gas contract price over the next 7-10 days and an “ebb lower” trend over the next 30-45 days.
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