U.S. natural gas surged Tuesday to the highest level in nearly 14 years as Russia's invasion of Ukraine wreaks havoc on global energy markets.
Henry Hub prices jumped more than 9% at one point to a session high of $8.169 per million British thermal units (MMBtu) during morning trading on Wall Street, the highest level since September 2008.
The contract later pulled back from its high, ending the day at $7.954 per MMBtu for a gain of 6.4%.
Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, said the increase was sparked by a "flurry of tighter market conditions," including the European Union considering a sixth round of sanctions against Russia that could include the nation's energy complex.
In addition, production is down in the U.S., and gas in storage is 21% lower than at this time last year.
"Higher power burn this summer with zero coal gas ... switching will reduce the amount of spare gas for storage infill which is pushing prices up in a classic commodity cycle ('backwardation") to get gas into the market now," he added.
Over the last two sessions, natural gas prices have jumped more than 8%, which follows a nearly 30% gain in April. The swift upward price action, which is also being fueled by surging demand for U.S. liquified natural gas, is adding to inflationary pressures across the economy. For example, consumers' electricity bills are rising as utility companies pass along their higher input costs.
EBW Analytics also pointed to changing weather patterns as increasing demand for natural gas as warmer temperatures usher in air-conditioning season.
"A faster-than-expected turn hotter, however, is the principle bullish driver as traders jump on early-season heat in Texas — and any further weather model shifts hotter could set up a challenge of recent highs," the firm added.
Energy was the top-performing S&P 500 group Tuesday, advancing more than 2%.
Francisco Blanch, managing director at Bank of America, also pointed to the rally in coal prices as fueling the surge in natural gas. He said that natural gas could head even higher.
"We have an energy crisis going on. I think one of the big issues that is going to help provide some relief is if we have a major economic deceleration, also known as a recession — but of course nobody wants that to happen," he said.
"I'm pretty concerned about the state of the energy market. Hopefully we'll see some supply responses. Hopefully producers in the U.S. and elsewhere will react to high prices, but there is no imminent relief for consumers," Blanch added.