Investing.com — Natural gas prices in the U.S. and Europe have climbed in recent months, driven by supply and demand factors, including colder weather and geopolitical uncertainty. While this trend could continue for a while longer, BCA Research analysts say cyclical and structural factors argue against a sustained increase in prices.
European benchmark prices hit a one-year high in December, reflecting the region’s lingering vulnerability due to reduced reliance on Russian gas. U.S. futures also neared a one-year high, partly anticipating higher demand for LNG exports to Europe if pipeline flows from Ukraine halt.
The looming expiry of the Ukraine gas transit deal on Dec. 31 has heightened supply concerns. The contract currently accounts for half of Russia’s pipeline exports to Europe. Ukraine’s Prime Minister Denys Shmyhal ruled out extending the deal but left room for alternatives involving non-Russian gas.
Weather remains a wildcard. Europe’s gas inventories, now at 78% capacity, are notably lower than the 89% seen a year ago. A colder-than-normal winter could lead to faster inventory drawdowns and greater price sensitivity.
The November “Dunkelflaute” event, marked by low wind and solar power output, pushed Europe to rely more on natural gas, highlighting the volatility in demand tied to renewable energy shortfalls.
Despite all these short-term uncertainties, analysts have a bearish outlook for natural gas prices beyond the winter. Industrial demand remains subdued, and global LNG supply is expected to grow, with capacity expansions from the U.S. and Qatar set to meet demand increases.
“Over the coming months, investors should seize the opportunity to sell natgas into strength,” BCA Research analysts wrote.
