Natural gas is a highly volatile energy commodity traded on futures exchanges in the United States and Europe. Futures in the U.S. reflect prices at the Henry Hub in Erath, Louisiana, while European prices reflect prices in the United Kingdom and the Netherlands.
While U.S. prices remain under pressure, U.K. and Dutch prices have been trending higher over the past weeks.
U.S. natural gas prices are over $2.50 per MMBtu on the November contract
U.S. natural gas futures have plunged after reaching a multi-year high in August 2022.
The twenty-year NYMEX U.S. natural gas futures chart highlights the rally from the June 2020 $1.517 low to the August 2022 around $10 per MMBtu high, where the energy commodity futures ran out of upside steam. The continuous contract fell to its most recent $1.60 low in February 2020. At near the $2.60 level in mid-September 2024, U.S. natural gas prices at the Henry Hub in Erath, Louisiana, for November delivery remain not far from the 2024 lows as the market shifts to the peak demand season when inventories begin to decline in November. U.S. natural gas prices tend to reach annual highs in November through January as the uncertainty of heating demand peaks.
U.S. natural gas for November delivery remains in a bearish trend in mid-September. While the price is higher than the continuous futures contract, reflecting seasonality, high inventory levels, and bearish sentiment continue to weigh on prices as the market moves toward the peak demand season. The six-month chart highlights the bearish trend.
U.K. natural gas prices have been moving higher
Natural gas futures for delivery in the U.K. reached a record high in March 2022 after Russia invaded Ukraine, causing significant supply concerns as the Russians are the leading supplier to Western European consumers.
The monthly chart highlights the explosive rally to the March 2022 record high and the implosive correction to the May 2023 low.
While U.S. natural gas for November delivery remains in a bearish trend in September 2024, U.K. natural gas's short-term price action has been mostly bullish.
The one-year chart illustrates the mostly bullish path of least resistance for U.K. natural gas prices over the past months.
Dutch natural gas futures are in a bullish trend
Prices for natural gas delivery in the Netherlands display a similar pattern to U.K. prices.
The monthly Dutch natural gas futures chart shows the same explosive price action that took prices to highs in March 2022 on supply fears and implosion that took them to lows in May 2023.
The one-year chart shows the bullish path of least resistance of prices over the past months.
U.S. natural gas now travels the world as LNG to regions where prices are higher. If the U.K. and Dutch bullish price trends continue, they could support U.S. prices as the peak winter season approaches.
Seasonality and geopolitics keep a bid under European prices
Seasonality is a powerful force in the U.S. natural gas futures arena, with prices reaching highs when the uncertainty of winter temperatures and withdrawals from storage cause prices to move higher during the winter. Prices often reach lows toward the end of winter and early spring as withdrawals end and natural gas begins flowing into storage.
Meanwhile, as the 2024/2025 winter season approaches, the war in Ukraine continues to rage, which could cause natural gas shortages in Western Europe for countries supporting Ukraine. If the coming season is colder than the past years, Russia may use natural gas as an economic weapon against “unfriendly” countries. Higher European prices could have a knock-on impact on U.S. futures prices.
Moreover, the November U.S. election will determine the path of U.S. energy policy for the coming years. Vice President Harris supports a greener agenda than former President Trump, which could impact natural gas production over the coming years. As of the end of early September, U.S. inventories were 6.2% above the previous year and 9.6% over the five-year average. However, Baker Hughes reported that 97 natural gas rigs were operating, 24 lower than the previous year.
Expect lots of volatility as the injection season ends and withdrawals begin
U.S. natural gas is moving into the peak demand season in a bearish trend, while European prices are trending higher. Meanwhile, the U.S. forward curve suggests that the market expects prices to adjust higher over the coming months.
The forward curve shows the $0.736, or 28.3% premium between November and January NYMEX U.S. natural gas prices. The January premium over November delivery in the U.K. is 5.7%, and in the Netherlands, it is only 3.65%.
The war in Ukraine and temperatures in the U.S. and Europe over the coming months could cause lots of volatility in the natural gas futures arena. European price trends could be a sign that U.S. prices are likely to move higher from current levels.
The U.S. Natural Gas Fund (UNG) is the unleveraged ETF that tracks nearby U.S. NYMEX natural gas futures prices. The Ultra Bloomberg Natural Gas 2X ETF (BOIL) turbocharges UNG but suffers from time decay if nearby natural gas futures prices move lower or remain stable.
The temperatures over the coming months will dictate the path of least resistance of natural gas prices in the U.S. and Europe. However, the ongoing war in Ukraine could trigger supply fears and shortages that may impact U.S. prices and move them significantly higher.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
