Natural gas up 5%, after more than 50% tumble over 3 weeks

By Barani Krishnan

Investing.com -- Natural gas rose more than 5% Monday as those long the market tried to make up for three weeks of losses that left prices down more than 50% since November’s close.

Gas futures initially rose as much as 11% as trading for the second week of January opened on the New York Mercantile Exchange’s Henry Hub. But the market lost a good part of its upward momentum as the day progressed, resulting in a settlement that was captured just about the session’s price peak.

Henry Hub’s benchmark February gas contract settled at $3.91 per mmBtu, or metric million British thermal units, on Friday, up 20 cents, or 5.4%. It was an incremental gain for a contract that lost 76.50 cents, or 17.1% last week, capping a 35% drop in two weeks prior.

After explosive upward price action for the most of 2022 from weather extremities and a supply squeeze caused by political and other disruptions to Russian gas output in the aftermath of the Ukraine invasion, natural gas futures suddenly collapsed from December onwards. The market’s turn was due to unseasonably warm winter temperatures since last month that left both the European and U.S. heating markets sufficiently supplied.

Weather readings suggest the potential for more downside price action in gas amid forecasts showing the likelihood for exceptionally mild temperatures across the United States through at least Jan.12.

Notwithstanding that, some analysts remain moderately bullish about gas over the course of the next two weeks.

“Not all is bearish for the U.S. gas market. The longer-range outlook of the European (ECMWF) and the Climate Forecast System Version 2 (CFSv2) weather forecast models are hinting at another potentially frigid weather pattern transition to occur by late January into February,” Houston-based energy markets consultancy Gelber & Associates said in a note issued Monday.

“If this outlook comes to fruition, it could result in more than 200 bcf or larger withdrawals in the weeks to come. Lastly, the longer-range ‘analog’ models also suggest that below-average temperatures could be a repetitive transient issue through late March or even April.”

Gas storage numbers from the U.S. Energy Information Administration have shown withdrawals exceeding 200 bcf, or billion cubic feet, over the past two weeks. While under normal circumstances, that would be considered bullish, market expectations for draws have been skewed even higher of late due to the abnormally warm start to the 2022/23 winter.