Natural Gas Continues to Hold Key Support!

(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 Energy Update, I said when a market holds key support in the face of negative news it is signalling the path of least resistence is for higher prices.Therefore, I continue to believe, Natural Gas and Electrcity are buying opportunities near present price levels. The key support level I referred to is near $2.50 per MMbtu, and Natural Gas has held above this key support level since 6/9/16:

The first successful test occurred 8/16/16 with Natural Gas holding above support at $2.523, the second test occurred a year ago when mild winter weather resulted in prices again pulling back to test this key support level prior to holding at $2.522 on 2/22/17. This month like last year, we experienced mild weather in February resulting in Natural Gas declining and successfully testing key support at $2.53 on 2/15/18.

Over the last week, as anticipated, prices moved higher, and the risk of higher prices is a concern. Remember as I wrote in last week’s report, we will likely end the winter heating season 15% to 20% below the 5 Yr. Avg. and 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 is prudent to do so.

As you can see in the 20-year chart below, Natural Gas prices remain very low from a long-term perspective, and should be considered a buying opportunity for hedgers:

Conclusions:

Over the last week, as anticipated, prices have moved higher, and the risk of higher prices remains a concern.

Remember as I wrote in last week’s report, we will likely end the winter heating season 15% to 20% below the 5 Yr. Avg. and anytime you can purchase a commodity near the lower end of its long-term trading range while supplies are significantly below the 5 Yr. Avg., it is prudent to do so.

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