NYMEX gas futures close near $8/MMBtu on storage, weather worries

The NYMEX Henry Hub contract for May delivery gained 52 cents on April 18 to settle at $7.82/MMBtu, the highest settlement price since September 2008.

Further out on the curve, contracts for delivery from July to February 2023 all settled above $8/MMBtu as traders worried about whether there would be enough gas in storage next winter after the summer injection season started at a three-year low, analysts said.

"Futures prices correlate well with the storage surplus/deficit vs. last year and the 5-year average," RBN Energy LLC analyst and Managing Editor Sheetal Nasta said April 15 by email as prices continued to climb. "Right now, of course, we have an expanding deficit and it's looking like the deficit could linger for a while, given the rates of power burn and LNG feedgas deliveries we're seeing."

Raymond James & Associates Inc. oil and gas analyst John Freeman said the absence of appreciable increases in supply by the exploration and production, or E&P, community are keeping prices up as drillers stick to their promise to investors to keep spending for production growth down.

"U.S. LNG demand is higher in the wake of Russia's invasion of Ukraine," Freeman said in an April 18 morning note. "U.S. Energy Information Administration reported U.S. LNG exports have been at all-time highs in each of the last two months, and terminals are running above nameplate on a short-term basis as maintenance is deferred and optimization is prioritized."

Continued strength in the gas commodity market has sparked continued investor interest in oil and gas equities, Tudor Pickering Holt & Co. Managing Director for Equity Research Matt Portillo said in an April 18 note.

"Investor interest remains most concentrated on the natural gas landscape as we remain constructive on fundamentals over the next six months — a tight global coal market and drawdown in inventories has limited power switching even at elevated natural gas prices," Portillo said.

Natural gas stocks — which have been on a tear since the oil crisis of 2020 — could perform well, even if the commodity prices revert back to $4/MMBtu, the Raymond James analysis said. "Our top pick in the E&P space remains strong buy-rated Antero Resources Corp. Those with direct natural gas price exposure in midstream include Targa Resources Corp., DCP Midstream LP, Cheniere Energy Inc., Crestwood Equity Partners LP, Williams Cos. Inc., Kinder Morgan Inc. and several others in the gathering and processing space."

RBN's Nasta said that gas is still volatile and the supply-demand balance can flip with weather or producers breaking out more rigs and adding wells. "The surplus/deficit can flip pretty quickly too if bearish conditions materialize. At these prices, if production responds more than expected, or if we get a very mild summer, then there's still some possibility we end up with a surplus by the end of the year."

As suddenly as the futures price shot to $8/MMBtu, they head sharply south in March 2023. "In part, this may reflect a market that is hyper-focused on the near-term bullishness and in wait-and-see mode beyond that," Nasta wrote.

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