RBC Capital Markets’ natural gas strategist, Christopher Louney, has recently provided insights predicting a significant increase in natural gas prices. Following a period of depressed prices, it appears that natural gas is experiencing a notable turnaround.
Natural Gas Prices on the Rise
Last week, natural gas prices dropped to as low as $3.10 per MMBtu (metric million British thermal units). Currently, prices have surged approximately 24%, reaching about $4.85 per MMBtu. This change comes amidst a decline in production by 4 billion cubic feet per day and stable LNG feedgas volumes above 19 billion cubic feet per day.
Impact of Weather Patterns
- A cold front is sweeping across the U.S., raising forecasts of near-term high double-digit temperatures from just 8% above normal last week to 35% currently.
- This weather shift has significantly impacted demand, leading to the price spike.
Louney forecasts that natural gas prices will likely maintain these gains due to the ongoing cold front, which is expected to persist into February. However, he warns that prices typically decrease once the cold weather subsides as the market transitions toward warmer seasons.
Long-term Price Projections
The anticipated price range for natural gas throughout the year remains between $3.49 and $4.85 per MMBtu. While these estimates are lower than market consensus, they reflect the seasonal nature of demand and production.
Energy Infrastructure Sector Outlook
In another report by Scotiabank strategist Robert Hope, energy infrastructure companies focusing on natural gas are highlighted as preferred investments. The firm anticipates year-over-year growth despite current headwinds such as power generation volumes and marketing margins.
- The report suggests increased project announcements in H1/26.
- Top recommended companies include ALA-T, AQN-N, BIP-N, CPX-T, KEY-T, and TRP-T.
Investor Sentiments
Scotiabank also surveyed fund managers, revealing a persistent bullish sentiment towards equities. However, there has been a noticeable shift towards diversifying portfolios into emerging markets, Canada, and EAFE, rather than continuing to invest heavily in U.S. stocks.
Despite optimism in certain sectors, there remains skepticism regarding sustained energy performance due to subdued demand and high supply levels.
The natural gas market is currently navigating through a significant transition, influenced by weather patterns and production levels. As prices rise, it will be crucial to monitor these dynamics closely in order to anticipate future market movements.
