USA Gas Prices Surge to Decade Highs
U.S. natural gas prices have “rocketed” higher since mid-March, rising over $4 per MMBtu to $8.80 per MMBtu at the prompt, a new BofA Global Research report has highlighted.
The report, which pointed out that this was the highest level since 2008, noted that the rally extended to the back of the curve as well with Cal 2024 up almost $1 per MMBtu at the same time.
“After momentarily flipping into a storage surplus in late December, a colder back half of winter pushed storage back into a deficit of over 300 billion cubic feet, the largest in three years,” the BofA Global Research report stated.
“While not near as severe as the one trillion cubic feet storage deficit seen in 2014, the market pushed prices to decade highs on fears that an increasingly inelastic supply/demand balance could lead to a gas shortage this winter, elevating risk premium across the curve,” the report added.
The Bofa Global Research report noted that production’s sluggish start to the year has played a major role in the Henry Hub rally “given its outsized impact on end of season inventory levels”.
“After staging a bit of a comeback in April, production was derailed again over the last two weeks as severe winter storms impacted nearly two billion cubic feet per day of Rockies and Bakken gas production,” the report said.
“Since the production outage started on April 24, the prompt contract has jumped $2 per MMBtu in just eight sessions,” the report added.
According to the report, output fell to 93.8 billion cubic feet per day in the first quarter of the year from 96 billion cubic feet per day in December.
In the report, Bofa Global Research highlighted that it had raised its balance of the year Henry Hub forecast to $7 per MMBtu (2022 Q2-Q4 average) and boosted Cal 2023 to $4.50 per MMBtu, adding that it remained below current forwards.
“We still believe there is some price elasticity left in the market as we expect production to grow four billion cubic feet per day year over year, ending the year above 99 billion cubic feet per day and ramping up further in 2023,” the report stated.
“That said, we expect volatility to reign supreme this summer as traditional balancing levers have become less effective,” the report added.
In a previous report sent to Rigzone on March 15, Bofa Global Research outlined that U.S. natural gas prices had shot higher on a combination of fundamentals and surging global energy prices after bottoming near $3.50 per MMBtu at the end of December.
At the time of writing, the Henry Hub gas price stood at $6.89 per MMBtu. This time last year, the price of the commodity stood at $2.93 per MMBtu. The Henry Hub price rose from under $4 per MMBtu in February this year to $8.78 per MMBtu on May 5.
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