Natural gas closed at $2.88 per million British thermal units on Monday, up 5.1% on the day and at a new 52-week high. It rose as high as $2.95 during the day, coming just short of a two-year high. Stocks of gas producers were rising sharply too: EQT (ticker: EQT) was up 5% and
Cabot Oil & Gas
The rally has been building for a while. Before Monday, natural gas rose for three weeks in a row, gaining 34% over that span. It was the largest three-week jump for the commodity since November 2018.
The gains come as oil has remained in a holding pattern, vacillating between the high $30 range per barrel and the mid $40s for the past three months. Brent crude futures fell 2.6% to $41.72 on Monday as investors responded to signs that supply is outpacing demand.
Production has come back online in several areas. Libya is restarting production at its largest oil field, a strike in Norway is over, and U.S. production resumed in the Gulf of Mexico after hurricane-related shutdowns.
“All said and done, around 2 million barrels of crude oil came back online, or are scheduled to come back online in coming days,” wrote Robert Yawger, director of energy futures at Mizuho Securities USA.
But the picture is different for natural gas. Gas prices have been subdued for years because there is a glut of the fuel, but the dynamics are changing.
Shale-oil production tends to produce natural gas too, so the boom in oil drilling in the U.S. has also led to more output. Covid-19, however, has slashed demand for products refined from crude, such as gasoline and jet fuel, so oil producers have sharply reduced their activity.
The result has been an overall decline in U.S. gas production.
“Several strands are converging,” wrote Andrew Weissman, who follows gas trends at EBW Analytics Group. “Production is faltering. Space heating demand, while still modest, is expected to surge starting Friday—and then remain strong for the rest of the month.”
As winter approaches, natural gas tends to trade based on whether it’s expected to be particularly cold, forcing people to use more gas for heating. It also trades based on how much gas is being used for electricity. Utilities have switched to gas from coal, which has provided another tailwind to gas prices.
On top of that, Hurricane Delta was not quite as bad as feared. Shipping terminals used to transport liquefied natural gas will be up and running faster than expected. That will allow exports to restart faster than the market had anticipated.
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