US natgas futures soar 26% to 3-week high on frigid weather forecasts, short-covering action

By Scott DiSavino

NEW YORK, Jan 20 (Reuters) - U.S. natural gas futures soared 26% to a three-week high on Tuesday on forecasts for much colder weather that is likely to lead to wells freezing and higher heating demand over the next two weeks than previously expected, forcing some traders to cover short positions.

After falling to a 13-week low before the Martin Luther King Jr. holiday long weekend, front-month gas futures for February delivery NGc1 on the New York Mercantile Exchange (NYMEX) jumped 80.4 cents, or 25.9%, to settle at $3.907 per million British thermal units (mmBtu) on Tuesday.

That close was the contract's highest since December 30 and its biggest daily percentage gain since prices soared by a record 46.5% on January 27, 2022.

Traders noted that much of that futures price gain likely came as speculators covered massive short positions.

Before the long holiday weekend, when the weather forecasts turned much colder, speculators boosted their short bets in futures and options 3023651MSHT on the NYMEX to their highest levels since November 2024, according to the U.S. Commodity Futures Trading Commission's Commitments of Traders report.

"Shorts may not fully cover positions for a few days, suggesting risks of still-high pricing ahead," analysts at consultancy EBW Analytics Group said in a report.

Looking forward, the premium of the front-month over the second-month NGc1-NGc2 rose to 67 cents per mmBtu, its highest since January 2024.

In the cash gas market, extreme cold in the Northeast region boosted next-day gas prices in New York NG-CG-NY-SNL by almost 200% to $11.76 per mmBtu, their highest level since February 2025.

In Texas, meanwhile, next-day gas prices at the Waha Hub NG-WAH-WTX-SNL in the Permian Shale in West Texas remained in negative territory for a fifth day in a row for the eighth time this year as pipeline constraints trapped gas in the nation's biggest oil-producing basin.

SUPPLY AND DEMAND

Financial firm LSEG said average gas output in the Lower 48 states has slid to 108.8 billion cubic feet per day (bcfd) so far in January, down from a monthly record high of 109.7 bcfd in December.

Meteorologists projected weather across the country would remain mostly colder than normal through February 4, with the most frigid days expected around January 23-27. Analysts said they expect that cold snap to freeze gas wells in Appalachia and the Bakken Shale.

LSEG projected average gas demand in the Lower 48 states, including exports, would rise from 150.0 bcfd this week to 168.8 bcfd next week. Those forecasts were higher than LSEG's outlook on Friday.

With temperatures forecast to average just 21.1 degrees Fahrenheit (-6.1 Celsius) across the country on January 24 and expected to keep averaging in the low 20s F through January 27, LSEG projected total demand, including exports, would reach 176.8 bcfd on January 26.

That level would fall short of the Lower 48 daily demand record of 181.2 bcfd set on January 21, 2025, when temperatures across the country averaged just 19.4 F, according to LSEG data.

Average gas flows to the eight large U.S. LNG export plants have held at 18.5 bcfd so far in January, matching the monthly record high set in December.