Pricing discussions have become mundane compared to the awakening effects of an Arctic cold snap.
Around the globe, natural gas prices are surging as we brace for what could be an extended period of chilly winter weather.
In the US, natural gas prices jumped over 10% overnight as forecasts indicate a distinctly colder winter ahead.
Pessimistic views on natural gas will soon be put to the test as some experts predict that January could be the coldest we’ve seen in 30 years, with a sustained chill likely continuing for years.
Celsius Energy anticipates that the forthcoming cold snap will affect not just the Lower 48 states but Europe as well, representing one of the longest cold stretches since 2022. European natural gas storage is already down by 500 billion cubic feet compared to last year.
The current deficit in European natural gas storage compared to last year has reached a significant -512 billion cubic feet, or -15%. This deficit is expected to worsen over the next couple of weeks as colder-than-normal weather spreads across Europe.
According to investing reports, natural gas prices in Europe are approaching monthly highs due to a faster-than-expected reduction in storage levels and the looming expiration of the gas transit agreement between Ukraine and Russia.
If these cold forecasts materialize, we can anticipate record demand and potential freeze-offs that could disrupt natural gas production. What was once a concern about oversupply may shift to worries about tight supply constraints, along with broader economic challenges.
This winter will put our infrastructure to the test, likely resulting in issues we haven’t experienced in years.
We’ll need to observe how the electricity and power grids hold up, and it’s probable that some complications will arise.
This is partly why we discussed acquiring out-of-the-money natural gas call options last week. If you’ve bought multiple contracts, you might consider taking profits from this initial surge, as these options could significantly increase in value over the next few weeks.
In the oil market, there are more indications of tightening inventories and better-than-expected demand, although the markets remain somewhat underwhelmed by the lack of clarity regarding Chinese stimulus. Nevertheless, with the onset of cold weather and tight supplies, it’s reasonable to predict that oil prices aren’t likely to drop far before making a move upward; a close above $71 on Monday would be needed to target the upper 70s.
The diesel crack spread is reacting to the cold snap with a notable increase.
According to S&P Global, North America lost 71 rigs week on week. Baker Hughes reported that as of December 27, the North America rotary rig count stands at 684, including 589 from the US and 95 from Canada.
While the total US rig count remained stable week over week, Canada’s count fell by 71 during the same period. The US total includes 589 rigs, divided into 573 land rigs, 14 offshore rigs, and 2 inland water rigs. This total consists of 483 oil rigs, 102 gas rigs, and 4 miscellaneous rigs, with 527 classified as horizontal rigs, 49 as directional, and 13 as vertical rigs.
If the cold weather forecast holds, we could see a significant impact on the economy, affecting everything from natural gas prices to the electric grid and businesses.
