Freezing weather in the US has stalled some production and boosted energy demand, sending US gas prices up 8 per cent to four-year highs.
ETF Securities head of research Nicholas Brooks says it appears investors think the price has bounced too far, with large outflows from long natural gas ETPs to short ones.
Long natural gas ETPs lost $18m (£10.9m) in outflows last week while $6m went into ETF Securities’ Daily Short Natural Gas ETP.
Capital Economics commodities economist Tom Pugh says the latest jump to more than $5 per million British thermal units is likely to be short lived.
The price spike is the highest since early 2010.
“Of course, the main reason for this sharp rise in prices is the surge in demand for heating due to the very cold weather in the US,” he explains.
“However, the cold weather has also disrupted production by freezing drilling equipment. This has squeezed supplies at the same time as demand has surged, leading to significantly higher withdrawals from underground storage than usual for this time of year.”
Pugh expects the price to remain elevated for the first quarter at least, while the cold temperatures remain.
Once winter ends he expects the price to fall to $4 a MMBtu, which is reinforced by the futures market, he says.
However, he believes a sustained increase in the price of gas is likely from next year.
Pugh cites increased demand because of emissions legislation squeezing new coal power plants and the growing use of natural gas in trucks, ships and home heating.
Since 2012 production has flattened out: 80 per cent of drilling rigs in the US are searching for oil because of its more attractive price.
That will be boosted further by exports of US shale gas to markets with much higher gas prices, such as Asia and Europe, which could begin toward the end of 2015, he adds.