Natural Gas Prices Jumped 5% After A Three-week Drop of 50%

The price of natural gas jumped by more than 5% on Monday as longs attempted to offset three weeks of losses that resulted in a decrease of more than 50% since the closing of November.

As trading for the second week of January began at the Henry Hub of the New York Mercantile Exchange, gas futures rose by up to 11 percent immediately. Nonetheless, as the day progressed, the market's upward momentum diminished, resulting in a closing price that was about half of the session's price peak.

On Friday, the Henry Hub gas contract for February was settled at $3.91 per mmBtu, an increase of 20 cents or 5.4%. Earlier in the day, February gas prices reached a high of $4.123 per mmBtu.

It was an incremental increase for a contract that lost 76.50 cents, or 17.1%, last week and 35.0% during the preceding two weeks.

Natural gas futures had a dramatic decrease beginning in December 2022, following spectacular upward price action throughout most of 2022 due to weather extremes and a supply squeeze caused by political and other barriers to Russian gas output in the aftermath of the Ukraine invasion. Due to unusually warm winter temperatures over the past month, heating markets in both Europe and the United States are now amply supplied.

In view of forecasts expecting extremely warm temperatures across the United States until at least January 12, meteorological indicators indicate the probability of more fuel price decreases.

Despite this, a number of analysts remain bullish on the gas market for the following two weeks.

There are some positive aspects of the U.S. gas market. Gelber & Associates, a Houston-based energy markets consulting firm, warned in a letter published on Monday that the European (ECMWF) and Climate Forecast System Version 2 (CFSv2) weather forecast models indicate another potentially frigid weather pattern transition by late January into February.

If this estimate materializes, it might lead to withdrawals of 200 billion cubic feet or more in the coming weeks. Lastly, longer-range 'analog' models suggest that below-average temperatures could be a recurring issue until late March or April."

The U.S. Energy Information Administration has documented withdrawals in excess of 200 billion cubic feet (bcf) during the past two weeks. This would be considered optimistic under normal circumstances, but the unexpectedly warm start to the 2022/23 winter has recently altered market expectations for draws.