Gas Prices Surge in Early 2025: Is It Time to Invest or Lock in Gains? Mizuho Analysts Weigh In
In a surprising turn of events, U.S. gas prices have seen a significant surge in early 2025, with spot Henry Hub up by approximately 12% year-to-date and the Cal 25 strip increasing by about 20%. Analysts at Mizuho have taken note of this trend and are now debating whether it is the right time for investors to capitalize on these gains or if further increases can be expected.
The rapid rise in gas prices has caught many off guard, as the magnitude and speed of the price rally have exceeded expectations. Mizuho analysts have attributed this surge to various factors such as LNG project start-ups, disciplined supply growth, sub-maintenance level rig activity, and secular domestic demand, all of which are contributing to a potentially undersupplied market for 2025.
Despite the bullish fundamentals driving this price rally, there are concerns about whether prices have climbed too high too quickly. One key indicator that Mizuho uses to assess the near-term direction of gas prices is the U.S. Storage Days of Demand on Hand. As of January 10, 2025, U.S. natural gas inventories could only cover 22.2 days of demand, lower than the five-year average of 25 days for this time of year, indicating tighter supply conditions.
While the analysts acknowledge the potential for extreme price moves, they also point out that markets tend to find balance through increased supply or decreased demand. Current conditions, including the peak winter season, muted rig activity, rising LNG feedgas demand, and colder weather forecasts, suggest that short-term strength in gas prices may persist.
Looking ahead, Mizuho maintains a conservative outlook for full-year 2025, with an estimated average gas price of $3.50, compared to the current strip price of $3.84. The firm has identified Coterra Energy, BKV, EXE, and EQT as preferred gas-exposed stocks for investors to consider.
In conclusion, the surge in gas prices in early 2025 has raised questions about the future direction of the market. While the current conditions point towards short-term strength, investors should exercise caution and consider the potential risks of extreme price moves. Keeping a close eye on key indicators and staying informed about market developments will be crucial for making informed investment decisions in the volatile gas market.