Natural gas futures have had an impressive start to 2024 after last year’s bear market. The energy commodity had crashed following a huge 2022-2023 rally, driven by record domestic production and higher winter temperatures. With Old Man Winter returning, investors have turned bullish on natural gas. Could prices remain above $3?
February natural gas futures surged $0.074, or 2.44%, to 3.113 per million British thermal units (Btu) at 14:40 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are poised for a weekly gain of more than 9%, adding to their incredible year-to-date gain of about 25%.
According to the US Energy Information Administration (EIA), domestic inventories of natural gas plummeted by 140 billion cubic feet for the week ending January 5, down from the previous week’s drawdown of 14 billion cubic feet. This was also worse than the consensus estimate of a withdrawal of 119 billion cubic feet.
The drawdowns were fueled by three regions: East (-42 billion), Midwest (44 billion), and South Central (41 billion).
In total, US stockpiles of natural gas stood at 3.336 trillion cubic feet, up 436 billion cubic feet from the same time a year ago. They are also 348 billion cubic feet above the five-year average. This was also the sixth consecutive withdrawal.
New weather forecasts suggest that temperatures could begin to warm up later this month after a bad case of winter snowfall and low temperatures in many parts of North America. This could weigh on heating demand days (HDD) and potentially reverse the latest US supply trends.
Energy analysts note that the market is trying to balance out the potential impacts of one of the coldest polar vortexes in more than a century amid all-time high output.
“Weather forecasters are mixed but all admit we’re going to see an incredible blast of below-normal temperatures. Most expect a warm-up after that. Yet this is where it gets murky,” said Phil Flynn, an energy strategist at The PRICE Futures Group. “Some are predicting that we will then see another major cold blast after the thaw. If that’s the case, we could see prices soar.”
If temperatures plunge to below zero, private producers are warning this could result in freeze-offs and lead to shortages in many parts of the country.
In other energy markets, February West Texas Intermediate (WTI) crude oil futures surged $1.78, or 2.49%, to $73.15 a barrel. March Brent crude futures climbed $1.72, or 2.24%, to $78.52 a barrel. February gasoline futures soared $0.0587, or 2.84%, to $2.126 per gallon. February heating oil futures rallied $0.0727, or 2.8%, to $2.6733 a gallon.