Natural gas futures on Wednesday posted a double-digit advance for a second consecutive session as Russia forged ahead with its invasion of Ukraine, intensifying concerns of an energy crisis and fueling a rally in commodity prices.

At A Glance:

  • War worries propel markets
  • Spot prices follow futures higher
  • Analysts expect triple-digit storage pull

The April Nymex gas futures contract climbed 18.9 cents day/day and settled at $4.762/MMBtu. The prompt month rose 17 cents a day earlier. The May contract also gained 18.9 cents on Wednesday to close at $4.787.

NGI’s Spot Gas National Avg. advanced $1.605 to $5.885, as cash prices rode the wave of momentum.

Analysts attributed the gas futures rally to war-induced supply worries that also bolstered European gas and global oil prices.

“The energy market fallout from Russia’s egregious invasion in Ukraine continues,” said EBW Analytics Group’s Eli Rubin, senior analyst. Traders “are pulling back from Russian supplies, with estimates of 2-3 million b/d of oil and product supply unable to find buyers as traders fear official new sanctions, desire to avoid being seen financing Russia, and freight and insurance costs spike.”

Benchmark gas prices in Europe soared more than 30% in Wednesday trading, while Brent crude oil spiked to $110/bbl – a multi-year high.

“Extreme market uncertainty because of Russia’s increasing military operations in Ukraine and the similarly intensifying risk of sanctions – which may soon include energy exports – are likely driving the surge,” Rystad Energy’s Kaushal Ramesh, senior analyst, said Wednesday. Traders are “factoring in the rising probability of sanctions on gas for each day the offensive continues.”

U.S. and European authorities have heaped heavy sanctions on Russia since it invaded Ukraine last week. European countries put limits on Russian shipping and a key pipeline awaiting commissioning. Both affect Russia’s energy export capabilities.

As of Wednesday’s trading, the United States had yet to directly target Russia’s energy sector, given that Europe gets about one third of its natural gas from Russia. However, a White House spokesperson said in televised comments that oil and gas sanctions were on the table.

“The U.S. may have spent most of the winter insulated from global gas market chaos, but the Henry Hub has now started to reflect a geopolitical risk premium from the Russia-Ukraine conflict,” Ramesh said. He said “full-tilt” demand for U.S. exports of liquefied natural gas (LNG) could emerge from the war, given that Europe was already low on supplies this winter. Dwindling deliveries of gas from Russia would amplify the continent’s need for U.S. supplies.

Bespoke Weather Services agreed, noting that the likelihood of increased calls for U.S. LNG outshone modest domestic weather demand.

“For now, the warmth over the next week or so wins out, skewing the 15-day outlook slightly toward the below-normal side in terms” of gas-weighted degree days, Bespoke said. “The main driver of price action across all markets continues to be the situation over in the Ukraine…The market is more news-driven than data-driven” and “that likely remains the case for the foreseeable future.”

Will EIA Post A Steep Storage Draw?

Thursday’s Energy Information Administration (EIA) natural gas storage report could add to the bulls’ case, Bespoke said. Polls were showing widespread expectations for a triple-digit withdrawal, reflecting solid late-winter demand for the week ended Feb. 25.

A Reuters poll found estimates ranging from pulls of 91 Bcf to 153 Bcf, with a median estimate of 141 Bcf. A Bloomberg poll produced a slightly narrower range and landed at a median of 140 Bcf. The Wall Street Journal survey found an average expectation for a 139 Bcf decrease.

For comparison, utilities withdrew 132 Bcf from storage a year earlier and 98 Bcf is the five-year average pull. Because of shifts in market fundamentals, NGI this week discontinued its machine learning model estimate.

EIA is scheduled to release its inventory data at 10:30 a.m. ET Thursday. Working gas in storage as of Feb. 18 stood at 1,782 Bcf, EIA said, more than 200 Bcf below both the year-earlier level and the five-year average.

Spot Prices Soar

Next-day gas prices spiked across the Lower 48 Wednesday despite a mixed weather-demand outlook.

NatGasWeather said the Russian-Ukraine conflict boosted prices across commodities, affecting even near-term buying. U.S. gas prices “seemingly ride the coattails” of soaring international oil and European gas prices, the firm said.

Cash prices surged in the volatile Northeast, while hubs throughout the nation’s midsection posted solid gains.

In Texas, El Paso Permian rose 19.5 cents to $4.145 and Waha advanced 17.5 cents to $4.130. Meanwhile, in the Midwest, Emerson gained 28.0 cents to $4.430 and Lebanon tacked on 25.0 cents to 4.410.

Out West, SoCal Border Avg. rose 28.0 cents to $4.335 and KRGT Del Pool gained 20.0 cents to $4.415.

NatGasWeather said while it was chilly in the Upper Midwest Wednesday, most of the country enjoyed mild to warm highs of 50s to 80s. Late week heating needs could mount, though.

“A brief bump in demand is expected Thursday-Friday as a weather system races across the Great Lakes and Northeast with rain, snow and lows of 10s to 30s,” NatGasWeather said. “However, another warm break will cover most of the U.S. this weekend into early next week with widespread highs of 50s to 80s for a return to light national demand.”

Blasts of cooler air are expected late next week in the central United States, the firm added, but the “more important South and East will be mild to warm early” before “becoming colder with highs of 30s to 60s March 13-16.”