Energy Update | September 19th, 2019
Natural Gas Poised to Move Higher This Winter? In my August 27th Energy Update, I explained why I believe it
Natural Gas Poised to Move Higher This Winter? In my August 27th Energy Update, I explained why I believe it
In my August 27th Energy Update, I explained why I believe it was wise to hedge your cost of Natural Gas and Electricity during this year’s Fall “Shoulder” period. If you read this report, you understand why the empirical evidence presented in this report supports higher prices long-term.
Since August 27th, Natural Gas prices increased 24%, going from $2.16 to $2.71 per MMBtu:
No one knows for sure where prices are going this winter, but we know over the last 20 years 12 times Natural Gas declined either into the Spring or Fall “Shoulder” periods followed by strong rallies. “Shoulder” periods occur between the Summer cooling and Winter Heating seasons, and 9 of the 12 “Shoulder” periods occurred late in the Summer or early Fall, three in August, five in September and one in October.
Also, as I pointed in my July 1st Energy Update, Natural Gas prices below $2.50 per MMBtu are rare occurring only in 2001, 2012 and 2016, and always preceded multiyear periods of higher prices, and this is exactly what occurred this year. We reached a seasonal low in August below $2.50 per MMBtu and then rallied above $2.50 per MMBtu in September. Based on these historical facts it is clear the risk of higher prices is significant not only this winter, but for the years ahead.
The trigger for a near-term price spike could be a colder than normal winter, which at this time is an unknown, but the Farmers’ Almanac, a service with an uncanny track record of accurately forecasting weather patterns long-term, is predicting a colder than normal winter.
The video in the link below discusses the Farmers’ Almanac’s winter forecast:
Only time will tell whether the Farmers’ Almanac will prove correct, and for the sake of those without an energy agreement protecting them from increased energy costs, I hope they are not right. But hoping is not a good energy strategy, making informed decisions based on historical facts is, and the facts point to higher Natural Gas and Electricity prices long-term.
Based on the empirical evidence delineated in this report, I believe Natural Gas and Electricity prices are poised to increase long-term, and it is wise to secure an energy agreement near present price levels. In the near-term, weather factors will influence the direction of energy prices, but even if we have a milder than normal winter, the downside reward potential of lower prices is minimal versus the upside risk of higher prices.
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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