January Market Snapshot: Cold Snap Drives Prices Up
The energy market is experiencing significant shifts as we enter the new year due to extended cold temperatures and supply concerns. Here’s what you need to know:
Weather and Demand
The cold temperatures we’ve been experiencing are forecast to extend into February, potentially leading to a more expensive spring if winter temperatures remain normal. This prolonged cold snap is increasing demand and affecting supply, as severe cold weather could cause natural gas drilling sites to freeze off, cutting production just as demand surges.
6-10 & 8-14 Day Temperature Forecasts
Supply Concerns
Natural gas storage levels are currently 2% below last year’s levels and only 5% above the five-year average. Projections indicate that we may fall below the five-year average in the coming weeks, with predicted withdrawals of over -200 Bcf in weeks two and three. This could push us below both the five-year and last year’s storage levels.
EIA: Natural Gas Storage Report
Pricing Trends
The prompt month pricing is approaching $4.00 and could reach or exceed this level in the coming weeks, barring any relief from warmer temperatures. This upward trend is likely to persist until we see a shift in weather patterns.
LNG Demand and Exports
LNG pricing in Europe and the UK has surpassed $15.00, increasing demand for LNG exports and consequently raising prices domestically. The US is currently exporting close to 16 Bcf/d of LNG. This situation may intensify due to recent geopolitical developments:
- Ukraine completely cut off all natural gas flowing from Russia to Europe on January 1st.
- While most EU countries have diversified their natural gas sources, many now rely on US supplies.
- This cutoff will affect countries like Slovakia, Austria, and Moldova, which primarily depend on Russian gas.
Market Outlook
Given the current market conditions, this week may not be ideal for purchasing energy. The combination of extended cold temperatures, supply concerns, and increased LNG demand is likely to keep prices elevated in the short term.
As always, we recommend closely monitoring market conditions and consulting with energy experts before making any significant purchasing decisions.
Natural gas production report
NYMEX 12-month Strip
ALL ABOUT THE NYMEX TWELVE-MONTH STRIP
- The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
- A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
- The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
- The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
- The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
- The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.
