Natural gas prices in the US have seen a significant surge recently, with front month prices rising 60% over the past three weeks and nearly 25% in the last week alone. According to RBC Capital, this sharp increase is due to a combination of several factors.
One of the main drivers behind the price hike is short covering, where traders buy back previously sold positions to avoid potential losses. Additionally, RBC said early hot summer weather has increased cooling demand in parts of the southern US, further boosting prices.
The bank notes that improved liquefied natural gas (LNG) flows, particularly from the Freeport facility, have also contributed to the upward trend. Moreover, continued lower production levels have played a significant role. RBC Capital notes that there is likely 1-2 billion cubic feet per day (Bcf/d) of production currently being curtailed or deferred.
RBC explains that weather forecasts predict above-average summer temperatures, 2-4 degrees Fahrenheit higher than historical averages, which could sustain the increased demand for natural gas. This week's storage inventory data supports this bullish outlook, showing a 78 Bcf injection, below the 85 Bcf consensus expectation and the 5-year average of 92 Bcf.
The bank's analysts emphasize that monitoring supply levels and producer actions will be crucial in determining whether this price rally is sustainable. Next week's report is expected to show an 80-90 Bcf injection, which is below the 105 Bcf seasonal norm, indicating continued tightness in supply.