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6:00 AM EDT, Saturday, January 24, 2026 For Friday, the front-month February 2026 contract rose 23 cents or 4.6% to settle at $5.28/MMBTU, which is a 5-year high for the date. On the week, the contract surged a stunning +70.0% in one of the commodity’s biggest weeks ever. Natural gas ETFs did not see these kind of gains as they are already rolled over into less volatile March contracts. Still, 1x UNG rose +4.0% on Friday and gained +36% on the week while 2x BOIL added +8.2% and +77% for the week.
What a week. After a late-session swoon on Thursday afternoon, natural gas prices again found their footing on Friday to wrap up the week on a four-day winning streak.
Can gas prices rise further from here? In my mind, there will be two key catalysts to monitor, one impacting the very near-term and the other the medium-to-longer term.
First is the issue of production freeze-offs. Not only will temperatures across the Haynesville, Permian, and Appalachian basins drop well below freezing allowing water vapor at well heads and connection points to condense and freeze, but heavy freezing rain could also impact the pipeline system. Over the past 3-4 weeks, production has already been in decline as shown in the Figure to the right, dropping over 4 BCF/day from December highs above 110 BCF/day to near 106 BCF/day, still up 3-6 BCF/day year-over-year. And per Saturday’s early-cycle data, freeze-offs are already kicking off with output tumbling -4.7 BCF/day from Friday to 101.4 BCF/day, down -1.8 BCF/day versus last year for the first year-over-year decline in over a year. Keep an eye on this graph as the arctic cold takes hold. It is unclear just how much supply will be lost to freeze-offs with conservative estimates of 50 BCF to more aggressive estimates topping 100 BCF over the next week. Some of these losses will be countered by higher imports from Canada and shut-in LNG export volumes but these will undoubtedly pale in comparison to freeze-offs. While freeze-offs will be temporary, they will likely play a major role in determining whether we see a record storage withdrawal in the week ahead or even, potentially, two straight -300 BCF or larger weekly withdrawals.
Second, and most importantly, the near-term temperature outlook will dictate sentiment in the week ahead. There is no question that exceptional and sustained cold will dominate the weather pattern in the week ahead. This is driving my projection of a record-setting storage withdrawal above -360 BCF for the week ending January 30 (pending freeze-offs as above) and a triple digit storage deficit versus the 5-year average entering February. However, this was largely priced in by last week’s rally (at least for the front-month contract). Instead, investors will be focused on just how long the cold will last and whether we will see renewed shots of arctic air heading into February. As shown in the Figure to the right, the current thinking is that forecast Gas-Weighted Degree Days (GWDDs) will tail off beginning late next week, returning to near-average by February 4-6. Longer term models suggest, however, that the Jetstream well into February could remain amplified, potentially setting the stage for recurrent shots of arctic air. This contributed to Friday’s rally. However, this remains highly uncertain. If the forecast for February trends colder over the weekend, look for gas prices to start the new week where they left off last week. If that GWDD outlook falls below the 5-year average in early February, however, don’t be surprised to see profit-takers with an eye on the future step in, even as the Lower 48 suffers under exceptional arctic air in the present.
On the huge spike on Tuesday and Wednesday, I took partial and then full profits on my natural gas long position in short KOLD, ultimately realizing roughly 25% gain on the trade. I moved this chunk of cash to the sidelines.
Last week’s big rally drove the front-month February contract to a huge 36% overvaluation versus its Fair Price of $3.92/MMBTU, likely driven by speculation of much tighter inventories to come. However, the Shoulder Season contracts—including the soon-to-be front-month March contract—remain under $4/MMBTU at comfortable undervaluations, well in excess of 10% as shown in the Figure to the right. Thus, even a modest pullback in response to milder February temperatures in my opinion, represents a good buying opportunity. For this reason, I re-entered the long trade on Friday, but cautiously using options. I sold 3 uncovered KOLD call options at the $26 strike expiring in two weeks on February 6, collecting $1.35 or $405 in premium. If natural gas pulls back another 10% or so, I will be assigned on this position, which will re-establish a bullish short KOLD position with a basis near $3.25/MMBTU for the March contract, which I would be happy with. If gas prices remain strong, I will just collect the premium and will never be assigned. Of note, while the strategy is cautious, the potential short KOLD bet is not. As with any short position, this carries with it the risk for unlimited losses. Trade with caution.
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