straga/iStock via Getty Images
U.S. natural gas futures soared to their best one-day gain in more than a year-and-a-half Wednesday following news that Chesapeake Energy (NASDAQ:CHK) plans to cut gas production this year, saying it sees the market as "oversupplied."
In its Q4 earnings report, Chesapeake (CHK) said its capital plan would support production this year of 2.65B-2.75B cf/day, after producing 3.43B cfe/day in 2023, 98% of which was natural gas.
Chesapeake (CHK) said it will defer new well production and completions, and build capacity that can be activated "when consumer demand requires it."
On its post-earnings conference call, Chesapeake (CHK) said the oversupplied gas market led it to cut one well each at the Marcellus and Haynesville basins while also lowering capital spending guidance by ~20%.
Gas producers Antero Resources and Comstock Resources said last week they planned to reduce drilling this year, and EQT lowered its 2024 production guidance range.
Chesapeake (CHK) closed +8%; other gas-focused equities also surged, including EQT (EQT) +10.6%, Comstock (CRK) +10.5%, Antero (AR) +9.5%, Range Resources (RRC) +7.7%, Southwestern Energy (SWN) +7.4%, Coterra Energy (CTRA) +6.2%.
Front-month Nymex natural gas (NG1:COM) for March delivery closed +12.5% to $1.773/MMBtu, its biggest one-day percentage gain since July 7, 2022.
Despite the big bounce, natural gas futures are still down 15.6% in February and have dropped nearly 30% YTD "on the back of burgeoning domestic natural gas production, above-average storage levels and a warmer-than-normal weather forecast through to the end of February," Rystad Energy wrote.
Meanwhile, crude oil gained as investors weighed developments in the Middle East against the outlook for global crude demand: Front-month Nymex April crude (CL1:COM) ended +1.1% to $77.91/bbl, its 10th gain in 12 sessions, and front-month April Brent crude (CO1:COM) closed +0.8% to $83.03/bbl.
ETFs: (UNG), (BOIL), (KOLD), (FCG), (UNL), (USO), (BNO), (UCO), (SCO), (USL), (DBO), (DRIP), (GUSH), (NRGU), (USOI)
Also providing a spark for Wednesday's natural gas price spike, analysts at EBW Analytics Group cited "an enormous speculator short position near four-year highs."
The reaction looks overdone, but "we are keeping a close eye on matching or similar production reduction comments from the other majors," Gary Cunningham of Tradition Energy said. "If those come in the next week or so we could see summer push towards $3 and winter make a drive for $4."