Cold temperatures that have increased the demand for heat have catapulted U.S. natural gas futures to their strongest start to a year yet.
Year to date, February futures rose 27%--a record—as February natural gas futures rose 11.49% to $4.742 per million BTUs at 1:43 pm EST on Wednesday.
The catalyst behind the increase in natural gas futures is a batch of freakishly cold weather hitting the East Coast, along with a winter storm that is now barreling toward the south.
Millions woke up to a deep freeze on Sunday as a snow bomb cyclone ravaged states from Kentucky to Maine, with some states declaring a state of emergency.
The cold snap—with the promise of more to come--has caused front-month natural gas futures to cross both the 200-day and 50-day averages, prompting traders to scramble to cover shorts and buy out of their bets.
Gary Cunningham, director of market research at Tradition Energy, told Bloomberg that speculative buyers could also be partly behind the price increase.
But, says Bloomberg, the 9-day relative strength index suggests that futures are indeed overbought.
And the cold weather isn’t over. A winter storm is headed for the southern U.S., and it will move along the East Coast on Monday. The last ten days of January are expected to be colder than normal, with freezing temperatures even reaching Texas—creating a major pull on heating demand.
According to Bespoke Weather Services, colder temps over the next two weeks would make it difficult to see prices falling below $4.00 in the short term, Naturalgasintel reported earlier this week.
Longer term, the Energy Information Administration sees prices coming down, according to its latest Short term Energy Outlook. For 2021, natural gas spot prices at Henry Hub averaged $3.91/MMBtu. This year, the EIA sees spot prices at $3.79, and for 2023, the EIA has forecast prices at $3.63.
By Julianne Geiger for Oilprice.com
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