NYMEX Henry Hub futures push $5 level as US gas market reacts to Russia-Ukraine crisis

Prompt-month futures prices at the Henry Hub were up in Feb. 24 trading as the US gas market responded to a surge in global energy prices that came following Russia's military invasion of Ukraine.

In morning trading, the March contract jumped to nearly $5/MMBtu before later easing back to the low-$4.70s following a bearish storage report released Feb. 24 by the US Energy Information Administration.

As the US heating season nears its end, the renewed push towards $5 gas partly reflects market jitters associated with rising global energy prices, but also ongoing fundamental tightness in the US market.

"From a global market perspective, the heightened geopolitical risk to Europe's energy supply is playing a big role in the pricing move," said Daniel Myers, senior market analyst with Gelber & Associates.

"The US is still relatively insulated from the international events that are occurring, [but] we're also headed for relatively low end-of-season storage. There will be a substantial storage deficit in the coming injection season – that's the broader pricing dynamic," he said.

Stephen Schork, principal at The Schork Report, agreed, saying that the loss of Russian gas into Europe through Ukraine is a potential challenge that would "gird" Henry Hub. Storage will also remain a bullish underlying fundamental supporting US gas prices, he said – even as the market transitions into summer.

Global context

Over the past several weeks, rising tensions along the Russia-Ukraine border have put the crude oil market on edge, lifting prices from the upper-$70/b range in early January to the mid-$90s over the past week. On Feb. 24, the benchmark WTI crude price jumped as much as $8, briefly trading at over $100/b.

While the global LNG market has been steered more by basic supply-demand fundamentals this winter, the prompt cargo market has more recently become fixated by rising tensions and climbing gas prices in Europe. Over the past week, global supply concerns have fueled a nearly 70% rise in the benchmark JKM LNG import price to nearly $37/MMBtu on Feb. 24, S&P Global Platts data showed.

While higher prices and tighter supply of crude and LNG globally may have limited fundamental impact on the US gas market, the evolving Russia-Ukraine crisis superimposes added uncertainty – potentially magnifying the market's already bullish underlying fundamentals.

US market balance

On Feb. 24, US gas production was down for a second consecutive day, falling to an estimated 92.5 Bcf/d, as freeze-offs hit output in basins stretching from West Texas, to the Rockies and the Midcontinent. The latest freeze knocks US production momentum which had recently culminated in a new-year high at over 94.5 Bcf/d, Platts Analytics data shows.

While production declines in the Permian, the SCOOP-STACK, the Denver-Julesburg and the Bakken will likely be short lived, the freeze-offs could temporarily exacerbate the market's dependence on already strained gas inventories.

In its latest report, the EIA estimated US gas storage at 1.782 Tcf as of the week ended Feb. 18, leaving inventories at 214 Bcf below the prior five-year average. While the weekly drawdown was bearish in comparison with the historical average, US stocks could still finish the current withdraw season at their lowest since March 2019. Even assuming average drawdown occur over the balance of winter, US storage levels would fall to around 1.45 Tcf by late March – a level that could keep injection demand elevated this summer.