Analyst: Natural Gas Glut Is Masking Booming U.S. Demand

Natural gas prices have plummeted to near all-time lows in the past year due to a huge oil and gas supply glut. However, according to Reuters' oil and gas analyst John Kemp, that same supply glut is masking a surge in U.S. gas demand.

U.S. power producers burned a record amount of natural gas last winter, and the U.S. Energy Information Administration predicts that 2016 will be another record year for gas consumption. Despite record consumption, however, prices and production has been driven downward by a massive supply glut.

Kemp believes that dynamic is about to change dramatically.

Gas stocks came in 69 percent above prior year levels in March. By July, the stock build had fallen to only 17 percent higher than last year.

“Gas prices will eventually have to rise to encourage more drilling and moderate further growth in power producers’ gas combustion,” Kemp explained.

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He’s not the only one betting on higher gas prices. Hedge funds have accumulated a long position in natural gas futures and options contracts equivalent to 869 billion cubic feet of gas since November.

“It seems likely prices will need to be higher in 2017 than in 2015 and 2016 to rebalance the market by restraining consumption growth and encouraging faster production,” Kemp concluded.

In the past three months, the United States Natural Gas Fund, LP UNG is up 21.5 percent.

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Disclosure: The author holds no position in the stocks mentioned.