Natural gas prices soar on Arctic blast

Summary

Natural gas prices are up nearly 50% for the week as an Arctic blast drives U.S. heating demand after a mild stretch, catching traders off guard. Short covering from a 14-month high in short interest is amplifying the move, while freeze-offs could cut supply by 10 billion cubic feet per day or more. The market is focused on a Texas snowstorm that could keep prices volatile, and the front-month/second-month spread above $1.30 signals a very tight market.

• Natural gas prices surged nearly 50% on the week amid freezing U.S. temperatures.
• Mild prior temperatures left heating degree days below last year and the five-year average.
• Low demand expectations drove short interest to a 14-month high, fueling short covering.
• Cold weather is boosting demand while production freeze-offs may cut supply by 10 bcf/d or more.
• The market is watching a Texas snowstorm that could keep prices volatile into next week.
• Front-month versus second-month spread above $1.30 indicates a tight natural gas market.