Natural gas price surge looks here to stay in increasingly bullish backdrop (NYSEARCA:UNG)

U.S. natural gas futures just notched their fifth weekly gain in a row, up 96% YTD and reaching their highest since October 2008, and investors are betting the surge will last for months, perhaps years.

The front-month May contract (NG1:COM) jumped 16% for the week to settle at $7.30/MMBtu, with every futures contract from now through February 2023 trading above $7 on Thursday, and even the January 2024 contract was above $5, according to Barron’s.

One catalyst behind this week’s rally in natural gas was a late season blast of cold weather making its way across the U.S., but a major reason for the sustained increases that could continue is an “increasingly bullish fundamental backdrop as inventories are now sitting 23.9% lower than the same period last year, and 17.8% lower than the five-year average,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.

The U.S. government reported gas in storage rose last week by 15B cf, less than half the normal rise of 33B cf, which brings total storage to 1.397T cf, meaning supplies are 439B less than a year ago and 303B below the five-year average.

Combined with “strong demand so far in the spring ‘shoulder season,’ when supply is supposed to build substantially before summer demand picks up, has bolstered prices as supply is expected to remain well below average for the foreseeable future,” Richey said.

ETFs: (NYSEARCA:UNG), (UGAZF), (DGAZ), (BOIL), (FCG), (KOLD), (UNL)

Gas-focused stocks sporting strong YTD gains include (EQT) +94%, (TELL) +83%, (CTRA) +50%, (CHK) +41%, (LNG) +36%.

Strong demand, partly due to the late cold weather but also because of consistently strong LNG exports, is keeping the inventories low: Europe wants U.S. gas so those countries can pivot away from Russian gas, and Asian countries want U.S. gas so they can reduce their dependence on coal, which causes higher carbon emissions.

“What we are going through now is a demand shock to the industry that came after a relatively long period of underinvestment,” Cheniere Energy executive Anatol Feygin told Reuters.

And due to Europe’s spike in electricity prices, “all interchangeable energy sources – coal, natural gas and oil – have become intertwined such that [the] price of one influences the price of the others,” Manish Raj at Velandera Energy Partners has said.

For example, coal competes with natural gas as an energy source, and coal prices have rallied in recent weeks.