Published on February, 7 2022
Natural Gas futures were trading in a very narrow spread on the morning of Thursday, January 27th. This day is important because it is a storage report day for natural gas inventories, and it was the settlement day for the February future contract. A very bullish report hit the wires at exactly 10:30 AM, and the futures began to rally. A report of expected cold temps across the country also made this day quite unique. Futures rallied throughout the afternoon leading up to settlement going above $7.00, and finally, February settled at $6.265. A rally totaling $1.98 in a single day. By the look of the volumes, it appears some short position holders were decimated leading up to the settlement. The last 35 minutes of the trading day was one of the most volatile short bursts seen in a very long time.
As February closed and settled, the following day marked the first day of trading on the March future. Friday opened the March futures contract at $4.768, which was 48 cents above the closing price the previous day. The story quickly turned on this future contract as the market traded in a band of 26 cents. The contract settled at $4.639. The March story is one of a few significant highlights; Storage deficits, the ongoing global energy crisis, and the impact of the worsening situation on the borders of Ukraine. The story of the global energy crisis and the situation in Ukraine is almost one, and the same as Russia supplies quite a bit of Western Europe’s natural gas supplies through its pipelines. The cost of energy in Europe has skyrocketed due to the lack of natural gas supply, and the LNG story has not changed over the last 6 months.
As we entered the first week of February, the volatility continued to play out for not only the March future contract but also going out as far as the February 2023 contract. Gains of 15% have been followed by losses of 10%, which most would say is extreme volatility. It is correct that it is extreme; however, in this globally connected energy world we live in, it is beginning to look like the new normal.
We continue to closely monitor the EIA storage reports and the cold weather fronts and will continue to report updates for the natural gas marketplace.