Natural gas rebounds amidst Red Sea disruptions
Mustafaa Ahmed
Chairman @ Manchester Trading Society | Crowwd | Global Markets Analyst
U.S. Natural Gas Futures Rebound Amidst Supply Dynamics
U.S. natural gas futures have experienced a notable 3% rebound, climbing above $2.5/MMBtu after reaching a six-month low of $2.2 in the preceding week. This upward movement is primarily driven by a combination of seasonal demand patterns and increased gas flows directed towards LNG export facilities.
Market Optimism Sustained by Export Growth
The prevailing optimism in the market stems from expectations of sustained robust exports, particularly with LNG terminals demonstrating increased appetite by consuming approximately 15 billion cubic feet per day. December's gas flows to major U.S. LNG export plants have exhibited a noteworthy uptick, averaging 14.7 bcfd, surpassing the previous record of 14.3 bcfd observed in November.
Projection of U.S. Gas Demand and Seasonal Variations
According to forecasts by financial firm LSEG, U.S. gas demand in the Lower 48, inclusive of exports, is anticipated to reach 126.7 bcfd this week, indicating a marginal uptick from the preceding week's 125 bcfd. However, expectations suggest a subsequent dip to 122.0 bcfd during the upcoming week, coinciding with the holiday shutdown of businesses and government offices.
Geopolitical Unrest in the Red Sea Elevates Concerns
Rising concerns within the market are tied to the escalating geopolitical tensions in the Red Sea, as the Yemeni Houthi militant group continues its attacks. This has prompted global freight firms to reroute shipping traffic around the Cape of Good Hope. Notably, BP has responded to these concerns by deciding to halt all shipments through the Red Sea.
Impact on Global Supply Chains and Inflationary Pressures
Market participants are carefully assessing the ramifications of disruptions in maritime trade, given the strategic importance of the Red Sea and the Suez Canal for both crude oil and natural gas transit. Analysts, including Michael Hewson, Chief Market Analyst at CMC Markets, emphasize that these disruptions could lead to prolonged diversions around the Horn of Africa, adding significant costs to company supply chains and potentially causing inflationary impacts.
Limited Effect on LNG Markets Amidst Suez Canal Worries
While concerns are mounting about disruptions to Suez Canal traffic, Goldman Sachs notes that such events are not anticipated to have a substantial impact on LNG markets, as they would unlikely cause a significant reduction in global availability. However, BP's decision to halt Red Sea shipments raises speculation about potential future disruptions.
Current Gas Prices and Climatic Outlook
As of now, gas for January delivery is priced at $2.56 per million British thermal units, reflecting a 56% decrease over the past year. This decline is primarily attributed to mild temperatures and a consistent supply. Looking ahead, the National Weather Service forecasts above-seasonal temperatures for most states over the next two weeks, with the potential for cooler temperatures in the southern half of the country in the subsequent three to four weeks.
Source: Bloomberg, Reuters
See less