Natural Gas and Electricity Resuming Long-term Trend Higher

In our last Energy Alert we predicted Natural Gas would remain below its long-term trend line for a short period of time and considered an opportunity to initiate or extend hedges. As you can see from the chart below Natural Gas closed above the 200-Day Moving Average today.

Natural Gas 2 year price chart
If you have not already taken advantage of the largest correction since the bear market began in the spring of 2012, we encourage you do so as soon as possible.

Please look at the 15 year chart of Natural Gas below:

Natural Gas Monthly Continuation chart
The correction we predicted would take place is minor from a long-term perspective, and the upside risk is substantial. Meteorologists are forecasting a much colder than normal winter in the high energy usage areas including the Midwest and Northeast. Long-term weather forecasting is an inaccurate science, but of all the long-term forecasters we follow the Farmers Almanac has been extremely accurate.

Below is Farmers Almanac’s 2014 Winter Outlook:

Farmer’s Almanac Winter Outlook 2014
Only the fullness of time will reveal the accuracy of the Farmers Almanac’s forecast, but based on their track record and the seasonal tendency for energy prices to rally heading into the winter heating season, we strongly recommend entering hedges at this time. Hedgers by definition are risk averse; therefore, it is not surprising the energy markets are firming from very low historical price levels. No one knows what will trigger the next spike in Natural Gas and Electricity prices, but a colder than normal winter or a geo-political event are 2 likely suspects.

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 at this time. We invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Senior Energy Analyst