Oil and gas prices are soaring as the geopolitical crisis intensifies and sanctions against Russia have led to the wildest rise in energy prices in a decade.
WTI crude oil futures hit a ten-year high above $112 a barrel on Wednesday; natural gas futures on the Dutch TTF exchange surged above $60, the highest level ever seen since December 2021.
WTI Crude Oil Futures Daily Chart, Source: Investing.com
The Henry Hub in New York rose 4 percent to $4.891 for the third straight week of gas contracts and has been up 24 percent since Feb. 7.
Natural gas futures daily chart, source: Investing.com
Dan Myers, an analyst at Gelber & Associates, a Houston-based gas consulting firm, said in an email to the company's customers on Wednesday that currently, the prices of multiple commodities are highly correlated with each other as each market tries to price the risks associated with the Ukraine crisis and the adverse effects of the global supply shock.
Myers noted that the Henry Hub has risen by about 17 cents since the outbreak of the war in Ukraine, with the largest price changes in previous months. Henry Hub's forward curve to 2024 presents a spot premium, albeit to a lesser extent than the U.S. West Texas Intermediate benchmark futures curve.
Myers' views were made ahead of the release of weekly gas inventories by the U.S. Energy Information Administration on Thursday.
Natural gas stocks, source: Gelber Associates
The data shows a decrease of 139 billion cubic feet in the week ended Feb. 25, compared with an average decrease of 132 billion cubic feet and 98 billion cubic feet in the same period last year and five years (2017-2021).
It would also be the eighth consecutive week of utility gas consumption of more than 100 billion cubic feet, with 4 weeks of drawdowns of more than 200 billion cubic feet.
Myers wrote in his email: "Strong weather-driven demand will significantly reduce gas inventories. ”
Meanwhile, according to Rover, there were 183 HDDs last week, compared to a 30-year normal level of 165 over the same period.
HDDs are used to estimate the heating needs of homes and businesses, measuring the number of times a day when the average temperature falls below 65 degrees Fahrenheit (18 degrees Celsius).
Myers believes that a survey of the weather-free market found that the U.S. domestic market is currently weakening from a state of extreme undersupply. The reduction in natural gas used for heating seems increasingly likely to be small.
But as international turmoil casts a long and far-reaching shadow on the rest of the world's commodity markets, the growing winter forecast has largely been cast aside.
Kaushal Ramesh, a senior analyst at Rystad Energy, has a similar view.
Ramesh said in a recent commentary that Russia's war with Ukraine could boost demand for liquefied natural gas (LNG) in the United States.
"Given that supply in Europe is already low this winter, the reduction in natural gas supply from Russia will expand the continent's demand for U.S. gas."
Bespoke Weather Services agrees with Ramesh and Myers, noting that the likelihood of increased demand for LNG in the U.S. outweighs the impact of the weather.
Bespoke said: For now, the weather will be relatively warm in the coming week, and the main driver of market price movements is still the situation in Ukraine.
"The market is more news-driven than data-driven, and this will continue for some time to come."
Disclaimer: To remain neutral, author Barani Krishnan cites a number of others whose views may be inconsistent, and Barani does not hold any of the commodity and securities positions mentioned in the article.