Natural Gas, Energy Prices, Inflation, Commodities – Talking Points
- Natural gas futures shoot 13% higher on expectations of colder weather
- Storms are expected to hit the South, then begin to move to East Coast
- Inventories report slated for Thursday, market expecting largest draw in 11 months
Natural gas prices shot higher on Wednesday as forecasts for colder weather across the US are expected to increase demand. Henry Hub futures traded higher by more than 15% before backing off slightly. Futures contracts in New York settled at $4.857 per million British thermal units (MMBtu). The drastic move higher was fueled by revised weather forecasts which show colder temperatures sweeping across the East Coast over the next couple of weeks. Wednesday’s explosive move higher saw U.S. natural gas futures trade at their highest price since November.
US Weather Forecast (10-15 Day)
Courtesy of HFI Research
After rising sharply throughout 2021, natural gas prices dropped 36% in the fourth quarter. Price came under pressure from the emergence of the Omicron variant, as well as warmer-than-average seasonal temperatures across the United States. Despite the drawdown in Q4, natural gas prices finished 2021 up 47% on the year. The strong rally on Wednesday may be the “perfect storm” as colder temperatures mixed with lingering supply inefficiencies and traders potentially looked to cover short positions.
US Natural Gas Futures Daily Chart
Chart created with TradingView
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With a strong winter storm expected to sweep across the South in the coming days and then make its way up the East Coast, price may continue to squeeze higher. Weather, which has little impact on the market throughout the fall, now looks set to take center stage. Market participants may also look to Thursday’s EIA report on inventories. Currently, analysts are expecting the largest draw on reserves since February 2021.
Commodities broadly rallied on Wednesday following the release of the U.S. CPI data. The hot inflation print saw both WTI and Brent Crude continue to rally away from the $80/bbl level. Rising oil and natural gas prices could renew fears among U.S. consumers, who may soon feel the pinch at the pump. With European and Asian energy prices already at elevated levels, risks for the cheaper U.S. energy market could remain skewed to the upside.
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--- Written by Brendan Fagan, Intern
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