Natural Gas Prices Surge as Bulls Target Easing Glut and Increased Demand: RBC

U.S. natural gas prices have been on a significant upward trajectory recently, driven by growing demand for power and a reduction in excess supply.

According to analysts at RBC Capital Markets, the situation is becoming increasingly promising as natural gas inventories are beginning to normalize from a surplus of nearly 450 billion cubic feet (Bcf) earlier this year.

Recent gains have brought natural gas prices closer to $3.00 per million British thermal units (MMBtu). Analysts noted that the bullish conditions for prices are intensifying as inventories continue to trend towards average levels.

The Energy Information Administration’s latest report indicated a storage injection of 55 Bcf for the week ending September 28, which fell short of the forecasted 59 Bcf. Current working storage levels sit at 3,547 Bcf, representing an increase of 127 Bcf compared to last year’s 3,420 Bcf, and 190 Bcf above the five-year average of 3,357 Bcf.

As the fall season approaches, RBC predicts that storage may peak at approximately 3.9 trillion cubic feet (Tcf), which would be 150 Bcf over the 10-year average.

In addition to declining inventory levels, robust power demand and anticipated increases in liquefied natural gas (LNG) exports are expected to further support natural gas prices. Weather forecasts suggest that much of the U.S. will experience higher-than-average temperatures, while the East Coast faces a mild cold front, potentially increasing demand for both heating and cooling.

The positive environment for natural gas prices has also contributed to a 12% rise in natural gas stocks year-to-date, surpassing oil-focused equities, which have declined by 4%. Current natural gas stock prices are around $5.02 per thousand cubic feet (Mcf), significantly higher than the five-year average of $3.50/Mcf.