Natural gas jumps in anticipation of cold weather
Oil futures ended higher in thin holiday trading conditions Tuesday, with support tied in part to lingering geopolitical worries around Russia and the Middle East, though upside remains capped by expectations for a crude surplus amid a shaky outlook for demand.
Natural-gas futures surged, hitting the highest for a front-month contract in nearly two years, in anticipation of cold weather that could affect production next month.
Price moves
- West Texas Intermediate crude CL00+0.11% for February delivery CL.1+0.13% CLG25 +0.11% rose 86 cents, or 1.2%, to close at $70.10 a barrel on the New York Mercantile Exchange.
- February Brent crude BRNG25+0.10%, the global benchmark, settled at $73.50 a barrel on ICE Futures Europe, up 95 cents, or 1.3%.
- Back on Nymex, January gasoline RBF25+0.11% rose 1.1% to finish at $1.959 a gallon, while January heating oil HOF25-0.10% edged up 0.2% to $2.222 a gallon.
- January natural gas NGF25-4.05% jumped 7.9% to $3.946 per million British thermal units, for its highest close since Jan. 4, 2023.
Market drivers
“Lingering geopolitical tensions surrounding the Russia-Ukraine War and Israel’s ongoing conflicts with Iranian proxy groups are keeping a weak but noticeable fear bid in the market for the time being,” analysts at Sevens Report Research wrote in a Tuesday note. “Geopolitics are the primary reason WTI has been able to hold above support in the upper $60s” in the second half of the year.
That said, the long-term fundamental setup and “increasingly heavy” price action indicate that the path of least resistance is lower as traders weigh the risk of a surplus in the global physical market becoming a problem for the market in the first half of next year, they said.
Activity was thin ahead of the Christmas and Hanukkah holidays, which may have also aided the bounce by crude, analysts said, and could leave the market with an upside bias in the near term.
“Lower trading volumes around the holidays are typically associated with reduced selling pressure from institutional short sellers in the futures market across asset classes,” Samer Hasn, senior analyst at XS.com, said in a note. “This in turn could open the door to sudden spikes on positive shocks such as a sudden escalation of geopolitical tensions or a positive news flow from the Chinese economy.”
Natural gas jumped ahead of the January contract’s Friday expiration, ending at its highest since Jan. 4, 2023.
“The major driving force in the recent push higher is weather forecasts starting to show the possibility of colder weather arriving by mid-January, potentially impacting southern states and thereby lowering production,” Brian Steinkamp, senior commodity analyst at Schneider Electric, said in a note.