Natural gas prices soared on Tuesday, as heating demand is expected to spike due to a blast of frigid weather across the U.S.
Prices surged 25%, or 78 cents, to $3.89 per million British thermal units by 10 a.m. ET, putting natural gas futures on pace for the best day in four years. Natural gas is used primarily for heating and electricity generation.
"Frigid weather is set to reshape the near-term natural gas outlook as Arctic air masses flash across the eastern US and the huge weather demand gain over the MLK weekend threatens severe market dislocation," EBW AnalyticsGroup told clients in a Tuesday note.
A big winter storm is forecast to dump heavy snow, sleet and treacherous freezing rain across the Southern Rockies, Plains and the South by Friday, according to the National Weather Service. The storm is then expected to shift toward the East Coast through the weekend.
Much of the U.S. was already gripped by frigid temperatures on Tuesday morning. The weather will threaten production freeze-offs, according to EBW Analytics.
"The frigid weather pivot comes with speculator short positions at a 14-month high â suggesting further bullish risks as shorts are forced to buy back gas," the group told told clients.
"Volatility will stay high, however â and any weather model warming into mid-February could allow a near term price spike to eventually soften," the group said.