US natural gas prices top $8/MMBtu in ‘irrational’ market

Strong points

NYMEX Henry Hub hits 13-year high

Spot prices rise along with futures contracts

Questionable fundamental support

U.S. natural gas spot and futures prices climbed above $8/MMBtu in May 4 trading, continuing a three-day rally as market watchers expressed doubts about whether whether the fundamentals support such a push.

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The NYMEX Henry Hub June contract settled up 46.10 cents at $8.415/MMBtu on May 4, according to preliminary settlement data from CME Group.

The fast one-month futures contract last settled above $8/MMBtu in August 2008.

The ongoing rally has seen the June contract rise more than $1.50 over the past five trading sessions. Futures prices began to rise in mid-March after spending most of the first quarter winter demand season in a more subdued $3-4.50/MMBtu range.

The May 4 rally in the U.S. physical spot gas market extended across all regions, regardless of the underlying supply and demand fundamentals of each region on May 5. In the Southeast, Henry Hub’s cash jumped 44 cents to $8.295/MMBtu in preliminary settlement, while in the Northeast, Algonquin’s town gates rose 20 cents to $8.46/MMBtu. In the Upper Midwest, Chicago city gates rose 23 cents to $8.21/MMBtu. In the Rockies, the Cheyenne Hub climbed 24 cents to $8.05/MMBtu, and in East Texas the Houston Ship Channel jumped 42 cents to $8.22/MMBtu.

Just seven days earlier, most U.S. spot gas prices were trading between $6 and $7/MMBtu.

Futures Rally

“I don’t want to call it a bubble, but we have a lot of exuberance, and a lot of it is irrational,” Stephen Schork, director of The Schork Report, told S&P Global Commodity Insights in a phone interview. “End users are in panic mode so any pullback will be limited as it will be an opportunity for hedgers to lock in prices.”

Jay Levine, a commodity futures broker, had a similar interpretation of the price rally, attributing much of it to market sentiment.

“You and I can smartly talk about what value natural gas should be valued at, but that kind of doesn’t make sense at this point. It is what it is,” Levine said. “We are returning to the days when markets reacted to things outside of existing fundamental forces: namely, fear premiums and [an] improve the technical image.”

Technical indicators, such as the Parabolic SAR and MACD, took a sharply bullish turn on May 2, Schork said.


Looking at the fundamentals, there has been a lot of talk about the lack of production response from US gas producers as prices climbed.

While U.S. gas production continues to lag highs seen in late 2021, month-to-date production is up about 500 MMcf/d from the same period a year ago. a year old, according to data from S&P Global. Imports from Canada also exceeded levels from a year ago, reaching 1.7 Bcf/d higher so far in May.

That said, demand is also higher than a year ago.

Persistent cold weather in the Midwest and Northeast has kept residential and commercial gas demand 4 Bcf/d higher so far this month than early May 2021, and consumer demand for electricity was observed to be 600 MMcf/d higher.

A forecast heat wave in Texas is expected to boost demand for gas-fired electricity May 7-10, according to S&P Global projections.


Alan Levine, CEO of Brokerage Powerhouse, pointed out in a telephone interview that the dynamics of the US natural gas market have changed significantly in recent years, leading to greater price uncertainty.

“The terms and conditions of the natural gas markets just aren’t the same as before,” Levine said. “All you can do is speculate [on] what might happen.”

Part of the changing conditions can be attributed to the withdrawal of alternatives to gas-fired power generation, such as coal and nuclear, Schork said, which has made gas demand less price sensitive.

All three market watchers speculated that even higher prices could be ahead while pointing out the unpredictability of the rally.

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