Why Is Natural Gas Suddenly Ripping?

On the back of diminishing inventories in the U.S. and heightened demand globally, natural gas prices have surged in recent weeks, prompting a corollary rise in November and December NG futures contracts to 2-year highs.

Energized Exports

Since bumping up against support at 2.75 in mid-September, liquified natural gas price have jumped 18 percent, hitting a high above $3.20 for the first time since February.

Prompting this is news that the average U.S. natural gas exports over the first six months of 2018 were 0.87 billion cubic feet per day, more than twice that of the 2017 average.

Domestic natural gas use, which includes residential and commercial power generation, is also up 16 percent when compared to last year, according to the U.S. Energy Information Administration. This also coincides with

Excess Gas

While demand is certainly pushing prices higher, the supply-side hasn’t been slacking either. The EIA’s most recent dispatch shows production on the rise. U.S. natural gas producers averaged 93.4 billion cubic feet per day in the first half of 2018, up 12 percent from the same span as last year.

Despite the uptick in production, the EIA reports that domestic inventories are still 18 percent below their 5-year average.

Weather, Winter and World Trade

Adding intrigue to this price surge is that it comes at a historically bad season for natural gas, since distributors have typically purchased their stockpiles for winter and consumers have yet to turn on their own heating units.

The impact of storm season and the potential for a colder than anticipated winter could threaten to deplete the diminished stockpiles further and boost prices further.

However, prices could retreat if energy demand drops. China’s recent 10 percent tariff on U.S. liquified natural gas are likely to take a chunk out of the export figures from the first half of 2018.

RJO Futures is a content partner of Benzinga