After months of sluggish performance, natural gas prices in the United States have experienced a surge, marking a significant turnaround in the market. Futures for natural gas on the New York Mercantile Exchange‘s Henry Hub have recorded double-digit gains for the second consecutive week, reinforcing the price level of $3.
This resurgence in natural gas prices follows a mostly lackluster year, during which the fuel struggled to surpass the mid-$2 range. Several factors have contributed to this recent positive trend, including favorable weather conditions, increased demand, and synchronized production dynamics.
One contributing factor to the bullish sentiment in the natural gas market is the recent storage data, which showed a smaller-than-expected build for the previous week. Lingering warmth before the arrival of cooler fall temperatures led to higher air-conditioning demand, defying expectations of a larger storage increase.
Analysts at Gelber & Associates, an energy markets advisory firm based in Houston, highlighted the role of storage conditions in driving this price surge. They noted that early weather projections for November, December, and January indicated temperatures that were not excessively cold. However, concerns persist in the market about the possibility of an unseasonably warm winter, which could result in lower heating demand.
Despite these concerns, the recent trend of storage injections falling below the five-year average has tightened the supply side of the market. This, combined with storage anxieties, has significantly influenced market sentiment and pushed prices above the $3 threshold.
The most-active November natural gas contract on the Henry Hub settled at $3.3380 per million metric British thermal units (mmBtu) on Friday, marking a 5.4% increase for the day. Over the course of the week, November natural gas saw a 14% gain, building on the previous week’s 11% advance.
The rally gained momentum following the Energy Information Administration’s report of an 86 billion cubic feet (bcf) build in natural gas storage for the week ending September 29. This figure was lower than the 92 bcf expected by industry analysts. The prior week saw a storage increase of 90 bcf.
The total amount of natural gas in storage in the United States stood at 3.445 trillion cubic feet as of the latest data, reflecting an 11.6% increase from the previous year. This represents a significant improvement compared to earlier in the year when storage levels exceeded 20% year-on-year. On a five-year basis (2018-2022), inventories were only 5.3% higher, down from double-digit figures observed earlier in the year.
This recent surge in natural gas prices has brought relief to gas bulls, who have struggled with sub-$2 pricing earlier in the year. Since April, natural gas futures have climbed by approximately 70%, benefiting from a combination of favorable weather conditions, increased demand, and synchronized production dynamics.
Despite a rollercoaster ride with unexpected factors such as spikes in liquefied natural gas (LNG) demand, pipeline outages, and record production levels exceeding 100 billion cubic feet per day, natural gas prices have finally managed to surpass the elusive $3 mark for the third time this year.
In summary, natural gas prices in the United States have experienced a notable uptick, ending a challenging year marked by persistent struggles to surpass the $3 pricing level. Multiple factors, including storage conditions and weather projections, have contributed to this recent surge, providing some relief to gas bulls in the market.
