Investing.com – Natural gas prices have risen in the U.S. and Europe in recent months, driven by supply and demand factors, including cold weather and geopolitical uncertainty. While this trend could continue for longer, BCA Research analysts say cyclical and structural factors are at odds with a sustainable increase in prices.
European benchmark prices hit a one-year high in December, reflecting continued weakness in the region due to reduced reliance on Russian gas. US futures were also close to their highest level in a year, partly anticipating higher demand for liquefied natural gas exports to Europe if pipeline flows from Ukraine halt.
The looming expiration of the Ukrainian gas transportation agreement on December 31 has heightened concerns about supplies. The contract currently represents half of Russia’s pipeline exports to Europe. Ukrainian Prime Minister Denis Shmyhal ruled out extending the agreement, but left room for alternatives, including non-Russian gas.
Weather is still a wildcard. Europe’s gas inventories, now at 78% of capacity, are noticeably lower than the 89% seen a year ago. A colder than usual winter may lead to faster inventory drawdowns and increased price sensitivity.
November’s “Dunkelflaute” event, marked by declining wind and solar production, pushed Europe to rely more on renewable energy, highlighting the volatility in demand associated with renewable energy shortages.
Despite all these short-term uncertainties, analysts have bearish expectations for natural gas prices after the winter. Industrial demand remains weak, and global supply of liquefied natural gas is expected to grow, with production capacity expansions from the United States and Qatar to meet increases in demand.
“In the coming months, investors should seize the opportunity to sell natural gas aggressively,” BCA Research analysts wrote.
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