Energy Update | 4 January, 2021
Natural Gas Might Be Poised to Rally to a Higher High. In my Nov 30th Energy Update, I said over
Natural Gas Might Be Poised to Rally to a Higher High. In my Nov 30th Energy Update, I said over
In my Nov 30th Energy Update, I said over the last 20 years, Natural Gas has only been below $2.50 per MMBtu 3 times, in 2001, 2012, and 2016, and it always preceded extended periods of higher prices. And as you can see in the chart below as we enter 2021, Natural Gas is again trading near $2.50 per MMBtu:
In the near-term, heating demand for Natural Gas for the week ending January 2 was 20% below the long-term average for this time of year and Natural Gas briefly declined below $2.50 per MMBtu. But longer-term prices are expected to increase as demand increases with exports of Liquefied Natural Gas reaching record levels while production is projected to decline more than 3% in 2021.
In the EIA’s December Short Term Energy Update, they forecasted declines in U.S. Natural Gas production this winter compared with last winter will more than offset the declines in Natural Gas consumption due to milder than normal weather, and inventory withdrawals will outpace the five-year average during the remainder of the winter season ending in March.
The EIA estimates Natural Gas inventories will end March 2021 at 1,600 Bcf, which would be 15% lower than the 5-Year Average, and if their estimate is accurate, then Natural Gas’s recent lows will soon be followed by another rally. A common pattern repeated early in bull markets is a series of higher highs and higher lows form, and as you can see, Natural Gas has been closely following this common bull market pattern:
After reaching a higher low of $2.24 per MMBtu on Dec 28th, Natural Gas is again rallying and opened the new year again trading above $2.50 per MMBtu, and if this bull market pattern continues to develop, we are in the early stages of another rally and Natural Gas will soon be higher than the higher high reached on October 30th at $3.34 per MMBtu.
Over the last 20 years, Natural Gas has only been below $2.50 per MMBtu 3 times, in 2001, 2012 and 2016, and it always preceded extended periods of higher prices. If the EIA’s recent forecasts are correct, then we might be in the early stages of another rally to a higher high above $3.34 per MMBtu. Weather factors will continue to influence the direction of energy prices, but based on the Natural Gas’s historical pricing over the last 20 years, the downside reward potential of lower prices short-term is minimal versus the upside risk of higher prices long-term.
Not every client’s risk tolerance and hedging strategy is the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
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