Natural gas price outlook amid forecasts of a deep freeze in February

Natural gas price in the US is at a two-month high amid heightened demand for heating. In Europe, prices are on downward pressure as the region experiences warmer weather.

US natural gas price

US natural gas futures hit $5.31, its highest level since November 2021 earlier in Wednesday’s session. Granted, it has since pulled back to $5.21. This is the first time that natural gas price has reached and risen above the critical level of $5.00 in about two months. Over a span of two weeks, it has rallied by 43.27%.

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The surge is a reaction to the predicted deep freeze in mid-February. This will be an escalation of the cold weather experienced in the current week.

With frozen pipelines, the flow of gas supplies to Arkansas, Oklahoma, and the Texas Panhandle dropped by 22% in Wednesday. Commodity Weather Group expects the region between Texas and Maine to record lower-than-normal temperatures  from late next week.

Investors are now keen on the weekly natural gas storage report set for release on Thursday by the US Energy Information Administration (EIA). In the last release, the amount of working gas in underground storage dropped by 219 billion cubic feet (Bcf) from the prior week’s 2,810 Bcf.

At that level, the stocks were 308 Bcf below the recorded amount in 2021 at a similar period. While it was 25 Bcf below its 5-year average, it remains within the 5-year historical range. If Thursday’s EIA report shows a decline in stocks, concerns over tight supplies amid a high-demand environment may boost natural gas price to a fresh November 2021’s high.

European natural gas prices

Meanwhile, the benchmark for European natural gas price is on downward pressure as a reaction to the rebounding Russian shipments via a major route through Ukraine. The Dutch TTF futures have reained below the psychologically crucial level of 100 euros since late December. On Tuesday, it dropped by more than 10% to an intraday low of 75 euros.

In addition to the rising Russian supplies, mild weather is also weighing on the prices. Besides, wind generation in Britain and Germany has risen significantly. The improved output has eased pressure on the gas-fuelled plants.  

In the ensuing sessions, the supply/demand dynamics will remain at play. On the one hand, northern Europe is expected to be more windier and warmer than normal. The weather conditions, coupled with steady Russian supplies will likely weigh on natural gas price in the ensuing sessions. Nonetheless, geopolitical tensions between Russia and Ukraine, coupled with the suspended flow of Russia supplies to Germany, will offer support to the prices.