Energy Update | August 10th, 2020
Natural Gas is Moving Out of Buy Zone https://youtu.be/Z5_aQjiSXKc My last 2 Energy Updates laid the groundwork for today’s report.
Natural Gas is Moving Out of Buy Zone https://youtu.be/Z5_aQjiSXKc My last 2 Energy Updates laid the groundwork for today’s report.
My last 2 Energy Updates laid the groundwork for today’s report. In my July 7th Energy Update, I said Natural Gas’s $1.43 low reached on June 26th was purely a short-term trading phenomenon similar to what happened to Crude Oil on April 20th, when the nearby contract of Crude Oil plunged to negative $40 per barrel, and as you can see in the chart below the next day Crude Oil immediately returned to positive territory, and steadily traded higher:
In my July 7th Energy Update, I said Natural Gas experienced a similar short-term trading phenomenon June 26th when on expiration day the nearby contract plunged to $1.43 per MMBtu, and as you can see in the chart below, like Crude Oil, Natural Gas has moved higher:
In my July 13th Energy Update, I said it was very unlikely Natural Gas would make new lows and the upside risk of higher prices was extremely high!
In my July 13th Energy Update, I pointed out we had a record low number of 75 active Natural Gas rigs, and active rigs are continuing to decline. The latest Baker Hughes report revealed we now have only 69 active rigs, far below where they were in 2016 when we declined to 81 active rigs and Natural Gas rallied from $1.61 to near $4.00 by the end of the year.
With only 69 active rigs today, where do you believe prices will be by the end of this year?
In the video included with the July 13th Energy Update, I explained similar to 2016, we were presently trading within a Buy Zone. In 2016, when Natural Gas moved out its Buy Zone, it remained above this zone for 3-Years. And as you can see in the chart below, we just moved out of this year’s Buy Zone:
In 2016, anyone wise enough to lock in a fixed rate for the next 3-years before prices increased saved a great deal of money. Therefore, with Natural Gas prices now moving out of its Buy Zone, I recommend locking in rates before they move higher long-term.
Based on the empirical evidence delineated in this report, I trust you appreciate why I believe, Natural Gas and Electricity prices are poised to increase long-term, and it is wise to secure energy agreements near present price levels. The short-term downside reward potential of lower prices 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
Senior Market Analyst
Energy Professionals
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