Market News

(Bloomberg) -- US natural gas continued to extend eye-popping gains, ending the day nearly 30% higher than Friday’s closing price as freezing weather sweeps across much of the country, boosting heating demand and disrupting supplies.

Front-month futures settled up 28.9%, or by $1.525, to $6.80 per million British thermal units, the highest closing price and the largest single-day gain since 2022. The February contract reached as high as $7.384 per million Btu in volatile intraday trading, a whopping 40% higher than the closing price on Friday. The more actively traded March contract settled up 8% to $3.898 per million Btu.

Meanwhile, gas for near-term physical delivery at the US benchmark Henry Hub in Louisiana traded as high as $53 per million Btu, according to traders. In the chilly Northeast, cash prices at the Iroquois Zone 2 hub were trading over $200 per million Btu, traders said.

The winter storm is estimated to have knocked offline 12% of US natural gas production, just as demand for the heating and power-plant fuel jumped. The big freeze has strained electricity grids and crippled transportation, grounding thousands of flights.

Traders are closely watching how long the disruption to US gas output will last as the storm sweeps through, and some were caught off guard by the scale of the disruptions in key export hubs such as Louisiana and Texas. Global gas markets have seen a volatile start of the year and a bigger impact than what’s already priced in could continue to send prices higher.

The thin March premium to April deliveries implies a “short-term, temperature-induced demand spike,” according to Bloomberg Intelligence. The modest spread between March and April also signals “sufficient storage at the end of the traditional winter draw season on March 31,” the research group said.

Temperatures were expected to average 15F (9C) below seasonal norms across a broad swath of the US, including producing regions in West Texas and Appalachia in the Northeast, according to the private forecaster Commodity Weather Group. Outlooks on Monday morning shifted slightly colder over the weekend.

The largest US grid operator is pushing power plants to secure natural gas supplies through the week on expectations that frigid temperatures will drive electricity usage to a winter record. Gas flows to US liquefied natural gas export plants have dipped to the lowest in a year as the winter storm disrupts output.

Natural gas prices hit the highest since December 2022, when European demand for US liquefied supplies was booming after it lost supplies from Russia following the country’s invasion of Ukraine earlier in the year. A 70% rally last week marked the biggest weekly advance in records going back to 1990.

“US gas price volatility is set to become a much bigger driver of LNG market value and risk across the next five years,” Timera Energy analysts wrote in a note.

The impact on front-month prices is also being exacerbated because the February contract expires on Wednesday, leaving liquidity relatively thin. Open-interest was less than 25,000 contracts on Monday, compared with 340,000 contracts for March futures.

--With assistance from Dan Murtaugh and Ruth Liao.