Natural Gas Consolidating Above Spring Shoulder Low
Natural Gas Consolidating Above Spring Shoulder Low https://youtu.be/yJsVfJ2KGfY In my May 3rd Energy Update, I said prices were consolidating above
Natural Gas Consolidating Above Spring Shoulder Low https://youtu.be/yJsVfJ2KGfY In my May 3rd Energy Update, I said prices were consolidating above
In my May 3rd Energy Update, I said prices were consolidating above long-term support near $2.50 per MMBtu, and in the process of forming a pattern similar to 2001, 2012 & 2016 when early in their bull markets they formed patterns of higher highs and lows, and the average price was always higher at least three years.
Therefore, it was not surprising Natural Gas prices consolidated above long-term support near $2.50 per MMBtu before moving higher and is now consolidating above its spring shoulder low!
A Consolidation pattern is simply a pause in a trend in which a market trades sideways for several weeks prior to moving out of the pattern.
45 years of trading commodities has taught me there are no hard and fast rules guaranteeing the future direction of commodity prices, but some patterns do increase the probability a market will move in a particular direction.
When consolidation patterns form early in long-term trends more often than not, they are continuation patterns, and the trend continues in the direction it came from. Therefore, since Natural Gas is consolidating above long-term support near $2.50 per MMBtu, and forming a pattern similar to 2001, 2012 & 2016 when prices were higher at least 3 years, it does increase the probability Natural Gas will move higher from present price levels.
Also, in my May 3rd Energy Update, I said our government’s fiscal policies will likely lead to inflation, which will adversely impact your cost of doing business, but you could insure one cost center would not increase. In response to the corona pandemic our government has increased deficit spending at an unprecedented rate, and the FED has aggressively implemented quantitative easing, which is flooding the monetary system with cash. Clearly these policies increase the risk of inflation, and the bond market is signaling inflation is on the horizon.
Long-term bonds decline when inflation rises because future payments from bonds won’t buy as much. When traders believe the cost of goods and services will be higher than it is today, bonds are less desirable, and their prices fall, which is what we have seen happening to long-term bonds over the last year.
As inflation concerns increased long-term bonds declined over the last year, and for the last three months they have been consolidating, but is this a continuation pattern forming prior to long-term bonds moving lower? I believe it is based on what U.S. Treasury Secretary Janet Yellen said in an interview yesterday. She said higher interest rates would be “a plus” for policy makers…“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade”. Over the years I have learned that when the Treasurer Secretary says inflation is too low rest assured inflation is on the horizon.
As I said in my May 3rd Energy Update, with inflation on the horizon, I believe three years from now you may look back and realize there was only one cost of doing business you could have stopped increasing, your cost of energy for Natural Gas and Electricity. Therefore, I believe it is in your best interest to secure fixed Natural Gas and Electricity rates at this time. Although weather factors will impact Natural Gas prices, I believe, the downside reward potential of lower prices short-term is minimal versus the upside risk of higher prices long-term.
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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