U.S. natural gas futures surged to $4.25/MMBtu in Wednesday’s session as Arctic cold boosts heating demand while potential freeze-offs threaten supply. An incoming Arctic blast is driving a surge in heating demand and also fueling concerns over potential production freeze-offs. According to Maxar’s latest forecast models, colder-than-expected temperatures are expected across the central and eastern U.S. through early March. Natural gas demand has been surging, with consumption currently at 122.9 Bcf/d, good for a 21% Y/Y increase.
On the supply side, U.S. dry gas production clocked in at 106.1 Bcf/d, slightly higher from last year but still vulnerable to disruptions from extreme weather. Storage remains tight, with the latest EIA report showing a 100 Bcf draw for the week ending February 7, higher than the expected draw of 91 Bcf. U.S. gas stocks remain 2.8% below the five-year seasonal average, adding to market tightness. Bullish traders expect gas prices to test the $4.442 resistance level, while any dip below the $4.020 support could shift momentum to the downside. Further upside pressure remains in play in gas markets unless production remains stable and LNG exports ease.
Meanwhile, European natural gas futures remain volatile, with prices hovering around €49 per megawatt-hour, as traders assess the urgent need to rebuild storage ahead of winter. Last week, Germany, France and Italy came up with a proposal to ease EU gas storage requirements in a bid to normalize the market. Under the current European Commission regulation mandates, all EU nations are required to refill their storage caverns to 90% capacity by November, with interim targets set for February, May, July, and September. EU gas storage is currently under 45% full, making it difficult to meet the requirement of 90% by November 1. That’s well below last year’s 67% mark at a corresponding point and the 10-year average of 51% for the same period. The continent’s seasonal draw has been bigger than in the previous two winters due to colder weather, lower wind power generation due to low wind speeds and the termination of Russian gas imports via Ukraine.
Source: By Alex Kimani from Oilprice.com