Unseasonably cold U.S. weather is boosting natural gas and heating oil prices on expectations of higher demand, though historical patterns suggest prices may normalize after sharp spikes.
Unseasonably cold weather across the U.S. has boosted some energy commodities, buoyed by expectations that their demand will shoot up.
Cold Blast To Bite: According to AccuWeather, the U.S. is set to experience the coldest weather so far this winter as the Arctic blast building up over northern Canada will likely sweep through several parts of the central U.S. later this week and during the weekend. Weather forecasters expect the cold blast to reach as far as Texas in the south and into the East.
The anticipated cold blast is expected to bring temperatures 10- to 40-degrees below the historical average over the Midwest this Friday.
Winter Bite Lifts Energy Futures: The weather forecast means demand for heating oil and natural gas will perk up. And the expectation has begun showing up in the prices of the futures corresponding to these commodities.
- Natural gas futures (NG) for February delivery, trading on CME Group’s New York Mercantile Exchange (NYMEX), jumped nearly 26% to over $3.90 per million British Thermal Units (MMBtu).
- Heating oil futures (HO) for March delivery climbed over 3% to $2.297 per gallon.
Independent oil analyst Tom Kloza sees the next two weeks presenting the stiffest test for Northeastern heating oil and natural gas markets in nearly a decade. In a post on X, Kloza said, “Natgas curtailments loom, and one wonders whether bio and renewable diesel will fare well with single-digit temperatures.”
What Happens After Big Spike? Notwithstanding the spike, natural gas futures are trading well off their peak reached in December 2005, when prices hovered past $15. With Tuesday’s surge, the commodity has backfilled a gap from October last. If it breaks convincingly above the $4 mark, it could be on track to test an upside resistance around the $4.20 level.
That said, data shared by a data-driven researcher on X showed that prices historically normalize after such big spikes and even turn lower in the near term.