U.S. natural gas futures surged more than 14% on Wednesday as temperatures drop and forecasts call for more winter weather ahead.
The contract for February delivery advanced 14.3% to settle at $4.857 per million British thermal units, hitting the highest level since November.
"The heating demand outlook for [the] eastern-third of the U.S. has strengthened materially for this weekend and for the last week of January," said Again Capital's John Kilduff, noting that this Saturday could see record natural gas demand due to a cold blast forecast for Friday.
"The weather has gone from being a non-factor or bearish factor all season to being meaningful, again, for prices and demand," he added.
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After surging for much of 2021, natural gas prices dropped 36% during the fourth quarter following warm temperatures and as the omicron variant sent jitters through the market.
Still, the contract posted a 47% gain for 2021, and is already up nearly 30% for 2022.
"Due to the cold weather, and realistic worries about tighter supply, prices are moving higher across the North American complex," said Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings.
"Overall there just isn't the extremely slack supply of natural gas in the market that has been the prevailing trend over the past 10 years," he added.
Jeff Kilburg, chief investment officer at Sanctuary Wealth, added that some of the price surge can be attributed to traders covering positions.
"The perfect storm is hitting Nat gas futures as freezing temperatures are hitting the market as supply shortages still exist, and this is all being amplified as many short speculator traders were caught offsides and are being forced to cover their positions, exaggerating the move higher today," he said.