NatGas Outshines Gold and Oil

Commodities started the week off on a positive footing on Monday, 9 December, on the back of geopolitical tensions in Syria and economic stimulus pledges from China. 

Gold (XAU) witnessed a 1.1% increase to $2,662.98 per ounce, and WTI (CL) and  Brent (EB) crudes rose 1.7% and 1.4% to $68.37 and $72.14 per ounce. However, natural gas (NG) ended the session with a notable 3.45% rise, supported by expectations for higher heating demand.

The commodities rally occurred despite a rising US dollar and increasing chances of an interest rate cut by the Fed at its 17-18 December meeting. 

Market participants remain focused on the US CPI report due tomorrow, 11 December, for insights into the next short-term trends. (Source: Reuters)

Gold, Oil Driven Higher by Geopols, Optimism

Gold opened the week on a safe-haven bid following the collapse of the Syrian government over the weekend and ongoing speculation of a Fed rate cut. However, the announcement by the People’s Bank of China (PBOC) that it had resumed purchases of gold after a six-month hiatus on Monday fueled the belief that other central banks might follow the lead, adding to optimism for gold.

The toppling of Syrian President Bashar al–Assad over the weekend had already naturally raised fears of instability in a Middle Eastern region already gripped by conflict. Syria’s strategic location and ties to major oil-producing nations like Russia and Iran boosted the geopolitical risk premium on oil prices. Coupled with China’s first-in-14-year announcement of loosened monetary policy for 2025, the expectation of increased economic activity in China played a significant part in oil’s rise on Monday. This follows a weekend decision from Saudi Aramco to cut Asian oil prices and an OPEC+ decision to delay production increases last Thursday, both signalling potential softening in demand.

Natural Gas Outperforms on Cold Weather

Despite gold having increased around 6% over the past six months as of 9 December, natural gas has risen nearly twice that at around 10%, while oil prices are down around 30%. Prices of natural gas traded near a 1-year high recently after surging around 25% in November alone as forecasts point to colder weather conditions than expected previously. In fact, weather forecasts on Monday showed below-average temperatures for the eastern half of the US this week, raising speculation of increasing demand for natural gas for heating.

Moreover, at last week’s natural gas weekly update, the Energy Information Administration (EIA) reported colder-than-average weather in the Northeast and Pacific Northwest, which boosted heating demand by 41.1% week-over-week in residential/commercial use and overall US consumption by 19.3%. LNG export demand also increased while dry gas production declined slightly, tightening supply. However, some downward pressure on prices came from above-average storage levels, warmer weather in California and a smaller-than-expected storage withdrawal.

Nonetheless, natural gas demand in the Lower 48 states was reported to be +10.9% higher year-on-year just on Monday, and dry gas production was down -0.9%, indicating slightly tighter supply conditions. Meanwhile, global energy technology company Baker Hughes reported last Friday that the number of active natural gas drilling rigs in the US increased by just 2, much lower than pre-pandemic levels to concern markets about future supply. Liquefied natural gas (LNG) net flows to US export terminals also fell -2.7% week-on-week, which still reflects strong international demand. (Source: Nasdaq)

Global Gas Demand Outlook Mixed

The EIA pointed to higher natural gas prices in November in its Short-Term Energy Outlook published on November 13, citing an increase in consumption during the heating season. For the full year, the EIA forecast Henry Hub spot prices, named after the delivery location of futures contracts on the New York Exchange, to average $2.90 per Metric Million Briths thermal units (MMBtu), primarily driven by LNG export capacity. The price at Henry Hub sat at $3.05 per MMBtu as of Monday.

However, in its “2025 Oil and Gas Industry Outlook”, Deloitte Insights reveals price stability in 2024 due to the Matterhorn Express Pipeline going online in October and higher price in 2025. The report said it expected Permian Basin infrastructure to ease transportation constraints needed for demand for AI data centres and LNG exports to continue growing. Although no price was provided, the outlook showed an increase of 3 Bcf per day up to 2030.

Zooming in December, the concurrent drop in temperatures across major markets like China, Japan and Europe, which account for over two-thirds of global usage with the US, is expected to drive gas-fired heating demand as gas inventories decline. The active restocking in Europe and Asia, along with reduced Russian flows to Europe, may keep natural gas in high demand well into 2025.

Wrap Up

The commodities market kicked off the week with a strong performance, fueled by a combination of geopolitical escalation in Syria, China’s easing monetary policy language for 2025 and colder weather forecasts. Gold was also supported by PBOC gold buying, while natural gas stole the spotlight, driven by colder-than-expected weather forecasts and tightening supply conditions.

Looking ahead, market participants are closely monitoring the US CPI report and the Fed's upcoming meeting, which could influence market dynamics.