Low Supplies Continue to Support Natural Gas Prices

(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my Feb 19^th & Feb 26^th Energy Updates, I point out since 6/9/16, we held above key support near $2.50 per MMbtu and would likely end the winter heating season with supplies 15% to 20% below the 5 Yr. Avg. I said anytime you can purchase a commodity near the lower end of its long-term trading range with supplies significantly below the 5 Yr. Avg., it was prudent to do so, and in today’s report, based on recent data, I will reiterate the same point.

Over the last 2 weeks, the consensus of major weather services are now forecasting the average temperature in March will be cooler than normal, which will result in supplies ending the winter heating season at the upper end of the 15% to 20% range below the 5 Yr. Avg.. Natural Gas supplies are estimated to end the winter heating season below 1.4 trillion cubic feet, which will be the lowest storage level for this time of the year since the spring of 2014, and as you can see in the chart below, not surprisingly, Natural Gas prices increased after holding long-term support near $2.50 per MMbtu on Feb 15^th:

Over the last month, we pointed out prices remain low from a long-term perspective, and should be considered a buying opportunity for hedgers, which you can fully appreciate by reviewing the chart below:

Although near-term, prices have moved higher since Feb 15^th, if you look closely at the above chart, you clearly see prices are still very low from a long-term perspective and a buying opportunity for hedgers.

 Conclusions:

Cooler than normal weather in March will result in our ending the winter heating season with Natural Gas supplies at the upper end of the previous estimated range of 15% to 20% below the 5 Yr. Avg., and leave us with the lowest amount of storage for this time of the year since the spring of 2014.

Not surprisingly prices have risen after holding above long-term support on Feb 15^th, but from a long-term perspective prices are still very low and a buying opportunity for hedgers.

Not every client’s risk tolerance and hedging strategy is the same, but we trust the above report will help you put into perspective the risk/reward opportunities now. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
North American Energy Advisory
Senior Commodity Analyst