Natural Gas Prices Hit Two-Year High Amid Colder Weather Forecasts
As of Wednesday, natural gas prices in the U.S. have remained steady at around $3.95 per MMBtu, reaching levels not seen in two years. With forecasts predicting colder weather in the coming week, demand is expected to increase, possibly leading to a new daily high.
Despite a decrease in warming demand this week and a reduction in gas outages, speculators have continued to increase their long positions to the highest level since February 2022. I anticipate that future storage reports will show significant withdrawals from stocks, potentially surpassing the record set in January 2022.
The recent conflicts in Ukraine have caused a shift in the gas market dynamics. Russia, the main gas supplier for the European Union, has seen its market share significantly reduced in response to the ongoing crisis. With the closure of the Nord Stream pipeline in 2022, most of the gas now flows through the Urengoy-Pomary-Uzhgorod pipeline.
However, as of January 1, 2025, Ukraine has decided not to renew its contract with Gazprom, closing the taps to prevent Russian gas from flowing through the country. This move has raised concerns about the stability of gas supplies in the region, particularly for countries like Slovakia that heavily rely on Russian gas.
One potential solution to the pipeline closure in Ukraine could involve transporting Russian gas to Azerbaijan and then distributing it to European countries through this route. While negotiations are ongoing, Ukrainian President Zelensky has voiced opposition to this proposal, citing concerns about benefiting Russia financially.
The issue of gas supply and payments to Russia remains complex and unresolved. European countries may need to explore alternative sources of gas, such as increased imports from the U.S. This shift in dynamics could lead to rising gas prices in the near future.
Analyzing the futures curve, I see positive indicators for the medium term. The curve is currently in a contango situation, where future prices are higher than the current spot price, signaling potential price increases. Based on my analysis, I predict that natural gas prices could average $5 in the third quarter of 2025, driven by rising temperatures and low inventories.
To capitalize on this trend, investors may consider investing in gas producers’ stocks, ETFs, or gas futures. By staying informed and making strategic investment decisions, individuals can navigate the changing landscape of the gas market and potentially benefit from the evolving dynamics.