Is the latest short-term decline in Natural Gas a long-term buying opportunity?
Energy News: July 22nd, 2024 Is the latest short-term decline in Natural Gas a long-term buying opportunity? Natural Gasis the
Energy News: July 22nd, 2024 Is the latest short-term decline in Natural Gas a long-term buying opportunity? Natural Gasis the
Energy News: July 22nd, 2024
In our June 24th Energy Update, we said that based on what has happened since 2000, and the 3 factors discussed in that report, was confirmation that we are likely in the early stages of a cyclical bull market.
1. Producers responded to unsustainably low prices below the cost of production by making strategic decisions to curtail production to support higher prices. The Baker Hughes most recent report released July 19th, confirms producers intend to curtail their production with active Gas rigs down 21% from this time last year declining from 131 to 103 active rigs.
2. Increased exports of Liquified Natural Gas (LNG) overseas and exports to Mexico via pipeline growth are decreasing our total domestic supplies resulting in our present surpluses becoming deficits in 2025, which will support higher domestic prices long-term.
3. NOAA is predicting summer temperatures will likely be higher than normal throughout most of the lower 48 states, and AccuWeather is forecasting a very active summer storm season, which could lead to higher prices this summer.
But after writing our June 24th Energy Update, Natural Gas has declined sharply:
The heading of today’s report is “Is the latest short-term decline in Natural Gas a long-term buying opportunity.”
In today’s report, we will explain not only why we believe Natural Gas has “unexpectedly” declined but also why we believe we are near an important long-term buying opportunity.
First, what precipitated Natural Gas’s recent decline?
Initially, the decline can be attributed to normal profit-taking after Natural Gas’s explosive rally starting Apr 26th. It is normal for cyclical bull markets to experience profit-taking pullbacks periodically before resuming their long-term moves higher.
But Natural Gas’s decline accelerated when Hurricane Beryl made landfall in Texas, it caused an outage at the Freeport LNG’s terminal, which reduced our LNG exports and increased our inventory surplus. The Freeport LNG plant is one of America’s largest LNG plants and can liquefy as much as 2% of our daily Natural Gas production; therefore, it is not surprising their shutdown is having a short-term impact.
Second, why do we believe we are near an important long-term buying opportunity?
This unexpected event has led to a short-term decline, but it does not alter the 3 long-term factors discussed earlier in today’s report; therefore, we believe we are still in the early stages of a cyclical bull market.
Our approach in analyzing Natural Gas is to use the empirical evidence of past price patterns to guide our recommendations and explain why the patterns were formed.
An example is since 2000 when prices were as low as they were this year, producers always responded to unsustainably low prices that were below the cost of production by cutting production leading to cyclical bull markets.
As you can see from the above chart, since 2000, when Natural Gas trended higher for at least 2 ½ to 3 years, they were classified as cyclical bull markets, and they were always triggered by unsustainably low prices.
But it is important to note, as we explained earlier in this report, that this year, we have an additional factor supporting a cyclical bull market! Increased exports of LNG overseas and increased exports to Mexico will deplete our supplies here at home, which will support higher prices long-term.
The recent decline in Natural Gas was attributed to normal profit-taking within an ongoing cyclical bull market, which was unexpectedly extended due to Freeport LNG’s temporary shutdown due to Hurricane Beryl’s early arrival in this year’s storm season.
But it is important to note the Freeport LNG shutdown is a short-term event, while the long-term factors discussed in today’s report remain firmly in place; therefore, we recommend anyone with agreements expiring within the next 18 months take advantage of the recent unexpected decline to lock in rates lower than where rates are expected to be at least through 2025.
Ray Franklin
Energy Professionals
Senior Commodity Analyst
Energy Professionals is committed to finding its customers the best possible rates on electricity and natural gas. Tell us your location and service type and our energy manager will connect you to the most competitive offers.
Switching to an alternate supplier is easy. There is no chance of service disruption, and you'll continue with your current utility for energy delivery and emergency service. Take a few minutes to discover your best offers, and enjoy the benefits of retail energy in your home or business.
1. Energy Type
2. Service Type
3. Zip Code
We believe that knowledge is power. Here’s a free e-book that provides business solutions to reducing energy costs.
Download E-Book Free Energy Audit
