Energy Update | Sept 14, 2020
Natural Gas Consolidating Above Buy Zone https://youtu.be/aBOAqc7y0r8 In my August 31st Energy Update, I said we had moved out of
Natural Gas Consolidating Above Buy Zone https://youtu.be/aBOAqc7y0r8 In my August 31st Energy Update, I said we had moved out of
In my August 31st Energy Update, I said we had moved out of this year’s Buy Zone, and in 2016, after moving out of its Buy Zone Natural Gas remained above it for three years. I explained why supply/demand factors supported a similar scenario in 2020. The EIA’s recent forecasts of decreased production and increased exports would likely lead to structural imbalances; therefore, the short-term downside reward potential of lower prices was minimal versus the upside risk of higher prices long-term.
If the EIA’s forecast is correct, then pullbacks to the Buy Zone should be considered buying opportunities, and I believe this is where we are today. As you can see in the chart below similar to 2016, after moving out of its Buy Zone Natural Gas pulled back towards it:
In my May 12th Energy Update, I said consolidation patterns form when traders are positioning themselves for long-term moves, and the longer it takes for the pattern to form the higher the subsequent move tends to be. This is especially true when the consolidation pattern is formed at historically very low-price levels.
In 2016 & 2020, Natural Gas consolidated within their Buy Zones for Six Months prior to moving higher. In 2016, after moving out of its Buy Zone, prices consolidated above its Buy Zone for a short time prior to moving higher. I believe like 2016, we are presently consolidating above this year’s Buy Zone to give traders time to build their positions before prices move higher. If you have not already protected your business against the probability of higher prices, I recommend you take advantage of prices consolidating above this year’s Buy Zone and secure prices before they move higher long-term.
Over many years of trading, I learned past performance does not guarantee future results, but based on the EIA’s long-term production and demand estimates and the empirical evidence contained in the above chart I believe the average price of Natural Gas will likely be higher over the next three years. Therefore, if you have not already locked in your Natural Gas and Electricity rates, I recommend taking advantage of the pullback towards this year’s Buy Zone. My concern is If you delay, you will likely pay more later.
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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