Natural Gas Continues to Rally After March 1st Energy Alert.

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

 In my March 1^st Energy Alert, I addressed where we are cyclically, potential near-term support levels, and where prices will tend to go long-term. In today’s report, I update what took place since my last report from all 3 perspectives.

1. Cyclical Perspective: From a cyclical perspective, it appears we have not completed the rally from the March 2016 cycle low, and prices should go higher before this cycle ends sometime in the future. The final highs in the present cycle will likely be attained due to a weather event such as a warmer than normal summer, a colder than normal winter, or a geo-political event, and corrections in the cycle will occur due to weather events.

The chart below shows nothing has changed from a cyclical perspective:

In my last report, I said after reaching the spring 2016 low, Natural Gas formed a similar pattern to what took place after the spring 2012 low, and if the present pattern holds, Natural Gas was close to a short-term low, and would trade higher from present levels. As shown by the green line in the above chart, Natural Gas has traded higher over the last month.

2. Potential Near-Term Support Levels: In my March 1^st Energy Alert, I said If we held above the fall 2016 low over the following week, prices would likely move higher near-term. The winter heating season is nearly over, near-term weather surprises will cease to be a factor, and the focus would turn from weather concerns to structural supply/demand imbalances presently in place long-term. Therefore, from a fundamental perspective, the odds favored prices moving higher from present levels.

 As you can see in the chart below, Natural Gas held after testing the previous seasonal low and is now moving higher:

3. Where prices will tend to go long-term: As I explained in my March 1^st Energy Alert, the answer to this question is much easier to answer than where prices are heading short-term. Since structural deficits remain in place and are expected to increase in the months ahead with further growth anticipated in Mexico gas and international LNG exports, the structural imbalances will support higher prices long-term. Nothing has changed since my last report, and the structural imbalances remain in place, and are expected to worsen in the months ahead.

Conclusions

Based on the above observations, Natural Gas and Electricity prices will likely increase long-term, and short-term pullbacks should be considered buying opportunities. The timing of entry, and most effective term, (length of contract), for your hedge is based on a wide variety of factors, but the 2 most important are your risk tolerance, and the shape of the pricing curve in the forward markets. Therefore, before securing your next hedge, I recommend contacting one of our trained advisors to help you develop a hedging strategy appropriate for you.

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

727-400-3170