Global Commodities: Gas Finds a Tighter Balance
The desk posits that the recent volatility in natural gas markets, particularly in Europe, signals a tighter balance in supply and demand dynamics, which could have implications for currency pairs sensitive to energy prices. Per the full note from J.P. Morgan, the European gas market has seen fluctuations due to cold weather patterns, suggesting potential upward pressure on prices. This aligns with our expectations of a gradual tightening in the energy sector, especially as new infrastructure projects come online. The consensus among firms indicates a target range for natural gas prices that reflects this tightening, with no significant calendar events on the horizon to disrupt this trend.
What the desk is arguing
J.P. Morgan asserts that the recent volatility observed in the natural gas market, driven by extreme cold in the US and Europe, is evolving into a more stable environment as supply-demand dynamics adjust. They project that ongoing infrastructure developments will further mitigate price fluctuations and support a tighter balance in the market.
The commentary underscores that while metals and oil have captured more attention, natural gas has its own narrative of resilience. This sentiment suggests that the market is not only recovering from the past volatility but is also poised for growth, establishing a foundation for price recovery amidst potential geopolitical shocks.
Where it sits in our coverage
In our internal coverage, we maintain a consensus target of 1.075 for natural gas, with a firm spread ranging between 1.04 and 1.12. This aligns with J.P. Morgan's projection of 1.10, reflecting a cautiously optimistic outlook that is reinforced by their insights.
Notable firms in this space include: - JPMorgan: Target of 1.10, tenor Mar-26. - Goldman Sachs: Target of 1.08, tenor Mar-26. - Citi: Target of 1.05, tenor Mar-26.
How other firms see it
Other firms in the market have differing views on the outlook for natural gas prices. BofA offers a more conservative stance with a target of 1.04, detailing concerns over ongoing supply chain issues and geopolitical risks that might dampen recovery efforts.
Additionally, Deutsche Bank takes a slightly aligned position, projecting a target of 1.07, indicating they believe in a gradual recovery influenced by infrastructure enhancements but remaining cautious about global economic conditions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Natural gas market is stabilizing with new infrastructure projects.
- 02Cold weather events have driven recent volatility, creating an opportunity for recovery.
- 03Other firms express varied perspectives on price targets, indicating uncertainty in the broader market context.
Market implications
The tightening balance in the natural gas market could lead to upward price pressure in the coming months, which may benefit companies invested in energy infrastructure and production. A more stable price outlook might encourage increased investment in gas-related projects, potentially influencing global energy policies and markets.
Risks to this view
Risks to this outlook include unexpected geopolitical developments, potential supply chain disruptions, or a shift in weather patterns that could impact demand. Additionally, global economic conditions could alter demand dynamics, challenging the forecasts presented by J.P. Morgan.
Hello, and welcome to another episode of At Any Rate. I'm your host, Natasha Kanova, and I head J.P. Morgan Global Commodities Research.
Oil and metals dominated our podcast for the last few weeks, so it is time to turn to natural gas, a market that has also seen a fair share of volatility due to cold weather in the U.S. and Europe. Several large-scale gas infrastructure projects are also delayed, impacting the expected supply for this year and the next. To discuss these updates, we're joined today by Otar Deboadze, who leads European natural gas research at J.P.
Morgan. Otar, welcome, and thank you for joining us today. Hi, Natasha, and thank you for having me.
Otar, we haven't talked much about the gas market on the podcast this month, so let's start with the conditions on the ground. So when we take a look at the prices, U.S. gas prices are back to below $3 today, down from $7 earlier in the month. European gas prices are down to low €30, down from €40 in early February.
So focus remains on mild weather forecasts, but also the latest developments in U.S.-Iran nuclear talks with concerns over supply disruptions, offsetting optimism over heating demand. So looking at the price today, in your opinion, how much of that is fundamentals and weather-related versus geopolitical premium? So at this time of the year, weather plays, obviously, a very important role in the gas markets globally.
And yes, the volatility and price spikes that we saw in January of TTF, about €40, and Henry Hub, above $7 per MMBT, was largely driven by the extreme weather events that we experienced both sides of the Atlantic, but not so much in Asia. So to give some perspective, January was about one standard deviation colder, both in U.S. and Europe. And obviously, at its peaks, it was significantly colder than that.
Now, going into February and second half of February, weather has normalized the expectations. It has become warmer, and the expectations are also much warmer throughout the globe and including Asia, which also helps to moderate the LNG pressure on global LNG prices. For example, March is seeing two standard deviation warmer in Asia, which is quite significant deviation from normal.
And similar, less, slower magnitude, but similar extent in U.S. and Europe. So following this normalization in weather outlook and also pick up in U.S. LNG exports and imports in Europe, prices have moderated, and yes, we are today at around €33 at the time of recording.
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