Natural-gas futures settle at a 3-year high after last week's historic climb

By Barbara Kollmeyer and Myra P. Saefong

Winter storm sends key contract to its highest close since December 2022

People cross a snow-covered street in New York City on Sunday. A massive winter storm has brought frigid temperatures, ice and snow to nearly 200 million Americans.

Natural-gas prices were not done rallying Monday, with futures settling at a level not seen since 2022 and stretching their streak of gains into a fifth straight session as a winter storm pummeled a large swath of the U.S.

"These volatile price movements are directly tied to escalating heating needs; massive, expected storage withdrawals; and production setbacks from freeze-offs," said Phil Flynn, senior market analyst at the Price Futures Group. Freeze-offs are output disruptions caused when water used in the production process turns to ice.

Front-month natural-gas futures (NGG26) settled 29% higher at $6.80 per million British thermal units, after trading as high as $7.439. The contract, which marked the highest settlement for a front month since Dec. 15, 2022, has more than doubled over its five-day winning streak, according to Dow Jones Market Data.

Natural-gas prices soared 70% last week to score the biggest one-week percentage jump on record, driven by an arctic blast that brought dangerous cold, heavy snow and ice to much of the U.S. and disrupted travel across a swath of the central and eastern parts of the country.

Prices rallied last week "as forecasts for bitter cold grew worse, after many speculative traders had been betting prices would fall," Jim Wyckoff, senior analyst at Kitco.com, said in market commentary Monday. Now those futures traders are feeling the brutality of a big "short squeeze, or the forced buying back of previously sold, or short, positions."

An estimated 82,000 U.S. customers were without power as of Monday, according to Poweroutage.com. The National Weather Service has predicted that below-normal temperatures for the eastern half of the lower 48 U.S. states could extend into early February.

Around 10% of U.S. natural-gas production was temporarily knocked out of commission just as demand was spiking, strategists at Saxo Bank noted.

"Pipeline deliveries to LNG export plants fell to a one-year low as operators curtailed activity ahead of the storm. Whether this disruption spills over into higher prices in Europe and Asia will depend on the extent of any lasting freeze-related damage," the Saxo strategists said. February Title Transfer Facility (TTFC00) natural-gas futures in the Netherlands - the European benchmark - have jumped 48% since the start of the year, as parts of the continent have also seen bitter cold and wintry weather.

Some natural-gas-related stocks edged higher in Monday dealings, but others moved lower after last week's gains. Expand Energy shares (EXE) were up 3% and EQT (EQT) traded 1.1% higher, while Coterra Energy (CTRA) lost 0.4%. Last week, shares of Expand and EQT both rose nearly 10%, while Coterra rose over 6%.

Goldman Sachs analysts cautioned last week that while natural-gas prices have likely overshot, continued freezing temperatures could mean persistent volatility. But with those spikes focused on nearer-term delivery contracts, those further out were unlikely to see a sustained rally, they noted, as they cut their summer forecast to $3.75 per mmBtu, from $4.50 previously.

June (NGM26), July (NGN26) and August (NGQ26) natural-gas futures were all trading under $4, suggesting that prices for the commodity may be headed lower in the weeks ahead.

Read: Natural-gas prices doubled in the last 5 trading sessions. Here are signs a 'sharp collapse' may soon unfold.

For now, however, the winter storm has lifted heating demand and the severe freeze also triggered notable well freeze-offs across virtually all major gas-producing basins, said Alex Pierce, commodity analyst at Schneider Electric.

"With both stronger demand and constrained supply unfolding simultaneously, prices have continued to build on last week's rally," Pierce said in a market update. "Near-term expectations remain bullish until temperatures begin to moderate and output recovers toward prestorm levels."

-Barbara Kollmeyer -Myra P. Saefong

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