Why are natural gas prices reaching 2-year highs?
Natural gas prices have surged to two-year highs as severe cold weather, record LNG exports, and production challenges create a perfect storm in energy markets.
Weather driving demand higher
Commodity trading participants have seen natural gas prices surge as Arctic conditions boost heating demand.
Lower wind speeds have reduced renewable energy production, increasing reliance on natural gas.
These factors have led to significant withdrawals from storage facilities with US LNG exports having reached record levels of 15.4 billion cubic feet per day.
The combined effect has created upward pressure on prices across major markets.
Supply constraints tightening markets
Production challenges from extreme cold have caused "freeze-offs" in key regions, where low temperatures halt natural gas production, leading to supply reductions.
Trading platform users note that higher-than-average withdrawals from underground storage in January have resulted in inventories falling below the five-year average, indicating a tighter supply.
These supply constraints are contributing to market tightness and price volatility.
Global demand factors
Online trading participants should monitor increasing international demand for LNG.
Geopolitical tensions continue to affect global supply chains.
European markets face particular pressure due to reduced Russian gas flows.
Rising Asian demand adds further competition for available supplies.
Storage and inventory impacts
Higher-than-average withdrawals have depleted storage facilities across Europe.
Current inventory levels indicate a tighter supply situation than normal.
CFD trading investors should watch storage data for price direction.
Rebuilding inventories could take longer than usual given current market conditions.
Technical analysis of US natural gas front month futures contracts
NYMEX natural gas futures briefly overcame their 4.369 January high and rallied to a 24-month 4.476 intraday high on Thursday amid severe cold weather which significantly increased gas consumption and also halted gas production, leading to supply reductions.
NYMEX natural gas front month futures daily chart
Provided the January-to-February highs at 4.369-to-4.476 cap, a minor retracement to the 24 January high at 4.050 may unfold. Below it meanders the 200-week simple moving average (SMA) at 3.907 which may also offer support.
NYMEX natural gas front month futures weekly chart
While US natural gas futures prices remain above their January low at 2.990, the medium-term uptrend remains bullish.
A rise above the current February 4.476 high could lead to the major psychological 5.000 mark being reached.
Market outlook and implications
The combination of supply and demand factors suggests continued price support.
Weather forecasts remain crucial for short-term price movements.
Global LNG trade patterns could influence regional price differences.
Monitor geopolitical developments for potential market impacts.
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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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