Natural-gas prices were poised for their largest yearly percentage rise in 23 years before erasing much of that gain in the span of six sessions this month. The U.S. market shifted from worries about tight supplies to the potential for lower heating fuel demand on the back of warmer weather forecasts.
Keep in mind that "volatility in natural gas is crazy high," says Robert Yawger, director of energy futures at Mizuho Americas. "It is the land of the brave."
U.S. consumers got a reality check when the Energy Information Administration's Winter Fuels report released on Oct. 12 forecast a 28% rise in the cost to heat their homes with natural gas for the winter season, which the government agency said runs from October through March.
The outlook assumed "base case" winter weather as forecast by the National Oceanic and Atmospheric Administration at the time, and natural-gas prices were up nearly 81% by the end of the Oct. 13 trading session, on track for their best year since 1999, according to Dow Jones Market Data.
By Oct. 21, however, gas prices posted six consecutive session declines to shave that year-to-date climb to 33%.
"2022 has not been a normal year for U.S. and global gas supply and demand fundamentals," says Walter Kunisch, senior commodities strategist at HTS Commodities, a division of Hilltop Securities.
In true volatile fashion, natural gas recouped around 13% of its price losses during a two-session rise ended Oct. 25. "If you are [a] volatility junkie, then natural gas could be a golden opportunity right now," says Mizuho's Yawger.
Based on the relative strength index, a momentum indicator in technical analysis, prices are in "super oversold territory " and screaming "buy," he says. But "make no mistake about it—natural gas is a monster that has wiped out many experienced traders over the years."
U.S. supplies have been rising in preparation for higher demand as colder weather sets in. The EIA pegged total working gas supplies in storage at 3.342 billion cubic feet for the week ended Oct. 14, up 111 billion for the week.
The EIA's reported five-year average storage deficits have narrowed significantly, says Yawger.
NOAA forecast on Oct. 20 that La Niña would return for a third-consecutive winter, leading to warmer-than-average temperatures for the Southwest, and along the Gulf Coast and eastern seaboard.
Meanwhile, the European Union has "dodged a major supply bullet," thanks partly to gas supplies from the U.S. and Qatar, says HTS Commodities' Kunisch, with German, French and Spanish gas stocks in storage above 93% filled.
That is despite EU turmoil with Russia, evolving EU energy policy that is "eliminating" Russian energy imports, and concerns about the EU not having adequate gas stocks this winter to heat homes, he says. European benchmark December Dutch TTF natural gas traded at 133.11 euros ($131.93) per megawatt hour on Oct. 25, their lowest since June.
In the U.S., November natural-gas futures settled at $5.606 per million British thermal units on Oct. 26. Yawger expects an average price of $5.75 this winter. A warm winter, or failure of Freeport LNG to restart its liquefaction facility after a fire led to a shutdown in June, which can contribute to domestic supplies in storage, could pressure prices, while an escalation of the Russian-Ukraine war could rally the market, he says.
In a recent note, analysts at BofA Securities maintained their "bearish" $4.50 per million Btus average forecast for next year, with demand growth set to slow in 2023. They also said prices could trade below $4 "if economic headwinds prove more damaging than expected, or [liquefied natural gas] loadings and Mexico exports disappoint."