Natural gas futures experienced a significant surge of up to 24% on Monday, driven by investor anticipation of a widespread cold spell across the United States. Weather forecasts predict a substantial temperature drop beginning this weekend, impacting the East Coast and parts of the Midwest as January approaches.
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Cold Weather Drives Demand for Heating Commodity
This anticipated cold front, with temperatures expected to fall below average and even dip below freezing, has triggered a surge in demand for natural gas, a common substitute for oil in heating. Patricia Medina, a market analyst at the New York Stock Exchange, noted the 16% surge in natural gas prices on Monday, directly attributing it to the impending cold front.
February futures for natural gas reached a high of $4.20 per million British thermal units during Monday’s trading session. This price jump builds upon recent upward trends, with natural gas prices exhibiting a remarkable 176% increase since their 2024 intra-day low in mid-February and approximately a 90% rise since early August. This surge positions natural gas prices for their highest close in nearly two years.
Global Factors Contribute to Price Surge
The influence of cold weather extends beyond the US, with forecasts predicting similar conditions in Europe, further driving up gas prices. Alex Kuptsikevich, chief market analyst at FxPro, highlighted these European cold weather fears as a contributing factor to the price surge. He also noted a five-week decline in US commercial crude oil inventories, now 4.5% lower than a year ago and near the decade’s lower range limit. Coupled with six consecutive weeks of declining gas inventories, these low stock levels point to sustained demand.
Furthermore, ongoing sanctions against Russia are amplifying demand for US liquefied natural gas, exerting additional upward pressure on prices. Kuptsikevich expresses a bullish outlook on the oil and gas sector, anticipating a continuation of the recent commodity price rally.
Bullish Outlook for Oil and Gas Sector
Kuptsikevich suggests that the incoming political landscape, characterized by close ties with the oil lobby and an agenda favoring US energy exports and potentially reduced support for alternative energy, creates a favorable environment for oil. This combination of factors – cold weather forecasts, dwindling inventories, geopolitical tensions, and a potentially supportive political climate – points to a continued upward trajectory for natural gas and oil prices.
In conclusion, the confluence of cold weather across the US and Europe, coupled with supply constraints and geopolitical factors, has propelled natural gas futures to significant highs. This surge reflects a complex interplay of market forces that are likely to continue shaping the energy landscape in the coming months. The bullish sentiment surrounding the oil and gas sector suggests that this upward trend may persist.
