This article first appeared on GuruFocus.
US natural gas prices retreated in thin trading after forecasts turned modestly warmer, easing back from a historic rally that had been driven by extreme cold, surging heating demand, and widespread supply disruptions. Front-month futures slipped 3.9% to $6.535 per million British thermal units as of 8:49 a.m. in New York, with the contract nearing expiration after logging its biggest single-day gain since 2022 earlier in the week. Even with the pullback, prices were still reflecting a more than 119% surge over the five days through Monday, the largest increase in records going back to 1990, after the severity of the winter storm caught both traders and forecasters off guard.
The sharp move higher has been underpinned by significant production outages, with about 50 billion cubic feet of natural gas taken offline from Saturday through Monday as freezing temperatures disrupted operations and froze liquids inside wellheads, according to BloombergNEF. That volume, equivalent to roughly 15% of US output, remained largely offline on Tuesday, potentially tightening supply for power generation and residential heating. While forecasts began to show slightly less severe cold in major producing states such as Texas and Louisiana through the end of the month, brutally cold conditions were still expected to persist in Appalachia and key Northeast demand centers, keeping supply risks elevated.
Market volatility has been further amplified by the February contract’s expiration on Wednesday, leaving liquidity thin and magnifying price swings tied to physical delivery obligations at the Henry Hub in Louisiana. Spot prices there surged on Monday, with next-day gas jumping to $30.565 per million Btu, the highest level reported by S&P Global Energy since it began publishing the data in 1987. The strain has spilled into the power system, with PJM Interconnection declaring a level-1 emergency across its grid serving 67 million people, while the US Energy Department authorized PJM and some units of Duke Energy Corp. (NYSE:DUK) to divert power from large facilities toward households and hospitals as the deep freeze continued to pressure energy supplies.
