Natural-gas futures settle at highest level since mid-November, up six sessions in a row

Price action

• Natural gas for February delivery
  NGG24
  settled at $3.19 per million British thermal units on the New York Mercantile Exchange, up 7.1% for their largest daily percentage rise since mid-June, according to Dow Jones Market Data.

• West Texas Intermediate crude
  CL00,
  -0.18%
  for February delivery
  CL.1,
  +0.49%

  CLG24
  rose $1.47, or 2.1%, to settle at $72.24 a barrel on Nymex.

• March Brent crude
  BRN00,
  -0.14%

  BRNH24,
  the global benchmark, climbed $1.47, or 1.9%, to $77.59 a barrel on ICE Futures Europe.

• February gasoline
  RBG24
  added 2.4% to $2.08 a gallon on Nymex, while February heating oil
  HOG24
  climbed nearly 2.9% to $2.65 a gallon.

Natural-gas rally

Natural gas led the gains among energy futures, with prices settling at their highest level since Nov. 15.

The Nymex February natural-gas contract has been on a “steady winning streak since the start of the year,” said Robbie Fraser, manager of global research and analytics at Schneider Electric, in a daily note. “That’s primarily tied to expectations of a cold snap moving across much of the central U.S. over the next two weeks.”

Below-average temperatures could “bring a double dose of price support — the most direct route coming via stronger heating demand from the residential and commercial sectors,” he said.

And if temperatures are sufficiently below freezing, that could “temporarily disrupt some production as well,” said Fraser. Overall, there may be a “temporary spike in demand coinciding with a brief drop in supply, squeezing spot prices higher.”

Read: EIA expects solar to lead U.S. power generation growth as coal demand drops

Oil-market drivers

WTI oil, meanwhile, plunged more than 4% while Brent fell over 3% on Monday, as investors reacted to Saudi Arabia’s decision to slash its official selling price to its main market in Asia and other regions, stoking worries about the strength of demand.

Bulls woke up Tuesday following reports that the Israeli military has stated that it expects the war against Hamas to continue through 2024, StoneX’s Kansas City energy team, led by Alex Hodes, said in a Tuesday note. That “raises the chances of the conflict growing into a regional crisis that could disrupt Middle Eastern oil production.”

U.S. Secretary of State Antony Blinken held discussions with senior Israeli leaders Tuesday in an effort to prevent the war in Gaza from escalating into a region conflict, according to the Wall Street Journal.

Shipping disruptions in the Red Sea and fears the Israel-Hamas war could spiral into a wider conflict that affects Middle Eastern supplies may help keep a floor under crude, analysts have said, though U.S. crude output at record levels above 13 million barrels a day are seen as undercutting efforts by Saudi Arabia and its OPEC+ allies to boost prices via production cuts.

“With U.S. oil production at record highs and having the capacity to rise much further as active oil rigs remain fairly low, there is a concern that other major producers like Saudi Arabia will attempt to defend their market share by pumping even more or offering deeper discounts,” Marios Hadjikyriacos, senior investment analyst at XM, said in a note.

“The risk of another price war could keep oil prices on the ropes for some time,” he said.

Read: Record U.S. oil production sparks battle for market share with Saudi Arabia and OPEC+

This week, the oil market will want to see more “cooling inflation data and a resurgence in soft-landing hopes as well as evidence that the plunge in domestic demand at the turn of the year was a ‘one-off,’” analysts at Sevens Report Research wrote in Tuesday’s newsletter.

On the charts, the $66 to $70 a barrel area remains a critical support level for oil prices, they said.

Another factor with the potential to impact prices is the rebalancing of 2024 allocations for the Bloomberg Commodity Index
XX:BCOM
and S&P GSCI index
XX:SPGSCI,
said analysts at StoneX.

Both indexes are set to reduce their exposure to both WTI and natural gas significantly, they said, and more selling pressure could be experienced on the market this week due to rebalancing, as the GSCI index has nearly $1 billion in assets under management.

On Wednesday, the Energy Information Administration will issue its weekly data on U.S. petroleum supplies. On average, analysts polled by S&P Global Commodity Insights expect the report to show a decline of 900,000 in domestic commercial-crude supplies, along with inventory increases of 4.9 million barrels for gasoline and 3.7 million barrels for distillates.