Some of the only people enjoying this week’s cold snap are investors betting on rising natural gas prices, despite ballooning supplies.

Warm temperatures have compounded oversupply difficulties by keeping demand for natural gas – used to heat homes – down. But last week, the season’s first natural gas storage withdrawal came in much bigger than expected at 64 billion cubic feet, albeit a month late.

With continued cold weather on the forecast, UBS Investment Research is calling for another major withdrawal next week of about 140 to 150 bcf, which should help reign in oversupply.

New drilling techniques that involve blasting large volumes of water and sand into gas deposits have significantly increased the amount of in-the-ground gas available to production companies, contributing to declines in the price of gas near seven-year lows.

At about US$5.10 per MMBtu, plenty of gas companies have a hard time justifying the expense of bringing gas to market. Supply-side adjustments could help balance out the gas price, but UBS says both continued cold weather and further supply declines will be necessary to use up the more than 573 bcf surplus over the five-year average.

FirstEnergy Capital says a lot of the same things, weighing in bullish on supply trends in the U.S. natural gas market, but remaining nervous about a sharp downgrade to their price outlook pending warmer, less favorable weather.

A lot remains dependent on cold weather, but at least for short terms, things look good for polar bears and natural gas bulls.

Joshua Brown