U.S. natural gas prices surged to the highest level in more than 13 years Monday as Russia's war on Ukraine causes a global energy crunch and as forecasts called for cooler spring temperatures.
Futures jumped 10% to trade as high as $8.05 per million British thermal units, the highest since September 2008. The jump builds on recent strength, with natural gas coming off five straight positive weeks.
Prices later retreated slightly, with the contract ending the day 7.12% higher at $7.82.
"The impact of the conflict between Ukraine and Russia is likely to be long-lasting for North American natural gas markets," said David Givens, head of natural gas and power services for North America at Argus Media.
EBW Analytics added that a "bullish weather shift" has sent the U.S. market into "overdrive."
For the year, U.S. natural gas prices are now up 108%, which is adding to inflationary concerns across the economy. The move is less extreme than in Europe, where natural gas futures have risen to record levels as the bloc scrambles to move away from dependence on Russian energy.
The U.S. is now sending record amounts of liquefied natural gas to Europe, which is lifting Henry Hub prices.
"LNG exports have taken on more significance with geopolitics and demand from both power generation/ industrial usage are strong. The US role as an exporter continues to increase," noted RBC. "There is a fundamentally constructive backdrop driven by record LNG outflows, strong Mexico exports, and producer discipline," the firm added.
Amid the jump in prices producers have kept output under control, and inventory in storage is now 17% below the five-year average, according to OTC Global Holdings Senior Vice President and Chief Data Analyst Campbell Faulkner.
"[T]he US is starting to potentially look like Europe this time last year crushing the near-term seasonality and switching the curve to a constant demand scenario," he said.
"Additional pressure on natural gas is also coming from the battle between Asia and Europe for spare LNG cargoes which will inevitably be diverted away from the US west coast and New England coming into next winter," Faulkner added.
Still, not everyone believes the rally is here to stay. Citi raised its base case Henry Hub price target for 2022 by 40 cents to $4.60 per million British thermal units, significantly below where the contract currently trades.
"[A] combination of factors could raise demand and slow production growth, but the market might be over-estimating their impacts as prices have surged," the firm said.