Natural Gas Prices Continue to Trade at a Nearly 14-Year High While Oil Prices Climb

Alright folks, let’s talk about whats happening in the energy markets because honestly? It’s getting pretty wild out there.

US natural gas prices have absolutely ripped higher, hitting levels we haven’t seen since 2008. And while thats putting serious pressure on American households, believe me when I say—it could be worse. Just ask Europe.

The Numbers Don’t Lie

Natural gas futures surged to $9.33 per million BTU this week, marking the highest closing price in nearly 14 years. For context, these contracts were trading around $1.48 back in June 2020 when COVID basically shut everything down.

That’s a 525% increase. Five hundred and twenty-five percent.

The May spike saw prices breach $8 per million BTU for the first time since September 2008, according to CNBC reporting. Russia’s invasion of Ukraine has absolutely wrecked global energy markets, and while America isn’t the hardest hit, we’re definitely feeling the ripple effects.

Why Is This Happening?

Look, the answer is pretty simple when you break it down: demand is outpacing supply, and inventory levels are running dangerously low.

“We’ve had this perma-heat wave cooking the United States,” explained Robert Yawger, vice president of energy futures at Mizuho Securities. And he’s not wrong. Scorching temperatures across much of the country have forced Americans to crank their air conditioning, which requires—you guessed it—natural gas to power those electric grids.

The real problem though? We entered 2022 with inventories already below historical averages, and production hasn’t caught up. US oil and gas producers have been under intense pressure from Wall Street to prioritize shareholder returns through dividends and buybacks rather than investing in new drilling projects.

That strategy worked great when prices were low and everyone was happy. Now? Not so much.

Europe Has It Way Worse

Before you start panicking about your winter heating bill, let me put things in perspective.

European natural gas prices are currently trading at levels equivalent to about $70 per million BTU. That’s roughly SEVEN TIMES higher than what we’re paying here in the States.

Russia has slashed natural gas flows to Europe in retaliation for Western sanctions, and the continent is now laying emergency plans to ration supplies. We’re talking potential factory shutdowns, possible heating restrictions, and a genuine energy crisis that could tip Europe into recession.

The US has ramped up liquefied natural gas exports to try helping our European allies, with around 75% of total LNG cargos heading their way compared to just 34% last year. But there’s only so much we can do.

“Every spare molecule we can find, we are shipping to the eurozone,” Yawger noted.

The Oil Situation

Heres where things get a little weird. While natural gas has been screaming higher, oil prices have actually been tumbling. That’s helped push gasoline prices sharply lower—the national average for regular has dropped for over 60 consecutive days.

Oil markets are more globally integrated than natural gas. Transportation and processing infrastructure allow for arbitrage across borders, which creates buffers against regional shocks. Natural gas markets are more fragmented because they rely heavily on pipeline infrastructure that prevents easy movement between regions.

Still, oil prices remain elevated by historical standards. Brent crude continues hovering well above pre-pandemic levels, and while drivers are seeing some relief at the pump, we’re far from the cheap gas days of 2019.

Energy sector investments have been performing relatively well given the volatility, with major oil and gas companies benefiting from higher commodity prices even as consumers struggle with rising costs.

What Comes Next?

The good news—if you want to call it that—is that higher prices should eventually incentivize more production. The futures market currently indicates natural gas prices could be nearly 50% lower by this time next year.

But futures markets aren’t crystal balls. A year ago, virtually nobody predicted we’d be staring down 2008-level natural gas prices. The situation in Ukraine remains fluid, weather patterns are unpredictable, and the global energy transition adds another layer of complexity to an already chaotic market.

For now, Americans should probably prepare for higher utility bills this winter. The silver lining? At least we’re not looking at potential rationing like our friends across the Atlantic.

“Depending on the weather, it could be a challenging winter,” said Rob Thummel, senior portfolio manager at Tortoise Capital Advisors. “But not as challenging as in Europe. They are at risk of running out of natural gas. We aren’t.”

Cold comfort, maybe. But comfort nonetheless.

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