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May 5, 2022: -On Tuesday, U.S. natural gas is increased to the highest level in nearly 14 years as Russia’s invasion of Ukraine wreaks havoc on global energy markets.
Henry Hub prices have increased over 9% at one point to a session high of $8.169 per million British thermal units (MMBtu) in morning trading on Wall Street, the highest level since September 2008.
The contract later pulled back from its high, at $7.954 per MMBtu by the end of the day for a gain of 6.4%.
Campbell Faulkner, senior vice president, and chief data analyst at OTC Global Holdings, said the increase was sparked by a “flurry of tighter market conditions,” including the European Union considering the sixth round of sanctions against Russia that could include the nation’s energy complex.
In addition, production is down in the U.S., and gas in storage is 21% lower than in the previous year.
“Higher power burn this summer with zero coal-gas switchings will reduce the amount of spare gas for storage infill, which is pushing prices up in a classic commodity cycle (‘backwardation”) to get gas into the market now,” he added.
Over the last two sessions, natural gas prices have gone up over 8%, which follows an almost 30% gain in April. The swift upward price action, fueled by growing demand for U.S. liquified natural gas, adds to inflationary pressures across the economy. For instance, electricity bills are getting higher as utility companies pass along their higher input costs.
EBW Analytics also pointed to changing weather patterns as increasing demand for natural gas as warmer temperatures usher in the air-conditioning season.
“A faster-than-expected turn hotter is the principal bullish driver as traders jump on early-season heat in Texas. Any further weather model shifts hotter could set up a challenge of recent highs,” the firm added.
The energy was the top-performing S&P 500 group Tuesday, advancing more than 2%.
Francisco Blanch, managing director at Bank of America, also pointed to the rally in coal prices fueling the surge in natural gas. He said that natural gas could head even higher.
“We have an energy crisis going on. One of the big issues that will help provide some relief is if we have a major economic deceleration, also known as a recession, but of course, nobody wants that to happen,” he said.
“I’m pretty concerned about the state of the energy market. Hopefully, we’ll see some supply responses. Hopefully, producers in the U.S. and elsewhere will react to high prices, but there is no imminent relief for consumers,” Blanch added.
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