U.S. natural gas futures rose more than 5% on Monday, registering their first monthly gain in four, helped by forecasts for colder weather and higher heating demand over the next two weeks.
Front-month gas futures for March delivery rose 23.5 cents, or 5.1%, to settle at $4.874 per million British thermal units (mmBtu), after rising nearly 9% to $5.057 earlier in the session.
For the month, the contract was up about 31% after falling 18% in December, its biggest monthly decline in two years.
The current rally appears to be the result of “short covering driven by the short-term weather outlook, which is colder-than-normal”, Robert DiDona of Energy Ventures Analysis said.
“Given the colder GFS (Global Forecasting System) model outlook, buy-side interest is resulting in a stronger price point,” he added.
“However, at the current elevated levels, it will be hard to sustain buy-side interest unless the cold forecast intensifies or continues beyond the current 11-15 day period.”
In intraday trade on Thursday, the February contract rose to $7.346 per mmBtu, the highest price for the front month since November 2008. The contract settled up about 46% at $6.265, its biggest daily percentage gain on record and the highest close for the front month since October 2021.
Data provider Refinitiv estimated 485 heating degree days (HDDs) over the next two weeks in the Lower 48 U.S. states. The normal is 420 HDDs for this time of year.
HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius).
In addition to extreme cold, record U.S. liquefied natural gas (LNG) exports were also supporting prices as global LNG buyers looked for ways to send more fuel to Western Europe in case Russia invades Ukraine and cuts off gas supplies to the rest of the continent.
The amount of gas flowing to U.S. LNG export plants has averaged 12.5 bcfd so far this month, topping December’s monthly record of 12.2 bcfd.
Refinitiv said average output in the U.S. Lower 48 states had fallen to 94.2 bcfd so far in January from a record 97.6 billion cubic feet per day (bcfd) in December.
Output dipped after wells in several regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and Appalachia in Pennsylvania, West Virginia and Ohio.
Refinitiv projected average U.S. gas demand, including exports, would rise from 136.0 bcfd this week to 139.3 bcfd next week.