SEATTLE (Oil Monster): Natural gas prices in the U.S. surged by this week as an intensifying Arctic cold front barreled toward much of the country, according to analysts at BofA Securities.
A powerful winter storm could arrive in the coming days, dumping snow and ice on two dozen U.S. states stretching from the Midwest to the East Coast over the next two weeks, meteorologists have said.
Power outages and tree damage from "catastrophic" ice accumulations could even impact the South, The Weather Channel has reported, citing the federal National Weather Service’s Weather Prediction Center.
With the threat of the storm looming, U.S. spot natural gas futures on Thursday spiked by more than 56% on a week-on-week basis to an intraday high of $5.65, before settling at $4.86, the Morgan Stanley analysts including Kalei Akamine and Noah Hungness flagged. On January 16, spot gas prices closed at $3.12.
Gas-exposed stocks, including EQT Corp, Expand Energy, and Range Resources, moved higher along with these prices, the analysts noted, but added the gains were "measured."
"The market has remained disciplined in pricing gas leverage – we estimate equities have mostly traded within a valuation band implying $3.50–$4.00 gas over the past 12 months," they argued.
The cold snap shows how extreme weather can "ripple across energy markets," the analysts said. BofA’s commodities research team estimated that this storm may add nearly 30 billion cubic feet of incremental heating demand over the next two weeks, a trend the analysts described as a "meaningful shift."
Prior to the storm, many traders were also penciling in end of winter storage levels of 1.9-2.0 trillion cubic feet, but now those expectations have slipped to roughly 1.7 tcf, they flagged. Historically, winter storms have reduced supply by 20-30 bcf on the low end, and 100-140 bcf on the high end.
Weather vendors are projecting between 20-200 bcf of natural gas supply impacted by elevated winter storm-related demand, although temperatures in Texas’s energy-rich Permian basis are expected warm by Monday and infrastructure in colder regions have been better prepared for freezing conditions, the analysts said.
Following a spell of freezing weather in Texas in 2021 which led to a deadly blackout in much of the southern U.S. state, utilities and grid operators have faced stricter rules around winter readiness -- although an artificial intelligence-driven increase in data center usage has meant that power plants have less time to go offline and perform maintenance checks, Reuters has reported.
Still, this week’s brief overshoot beyond $5.00 may be a reflection of worries around the ability of energy resources to be physically delivered to their end consumer, rather than fears over a gas shortage, the analysts said. A "balanced-market price" for natural gas is seen at $3.50, while $4.00 is "tight."
"Coming into winter, our view was that [liquefied natural gas] demand was largely balanced by new supply, leaving prices driven by weather -- cold in early December, followed by several warm weeks in January, and now another cold turn," they said.
Courtesy: www.investing.com
