https://youtu.be/EXorOBNb_eQ https://youtu.be/Ag0wLvgfvfQ In today’s report, I will discuss what took place since last week’s report and how impacted Natural Gas.
In today’s report, I will discuss what took place since last week’s report and how impacted Natural Gas.
After my Oct 4th Energy Update, NOAA’s 8-to-14-day forecast is calling for milder than normal weather.
And this triggered a pullback in Natural Gas from its highest prices since the winter of 2013/14.
Right, you can see NOAA’s 8 – 14 day forecast as of October 11, 2021 and it’s resulting impact on natural gas.
The question is should hedgers consider this pullback a good entry point for new hedges or wait for lower prices?
In this week’s report, I will explain why I believe the mild weather forecasted by NOAA over the next 2 weeks is an excellent opportunity to secure hedges before the winter heating season.
In my years of trading commodities, I have always focused on seasonal patterns to help determine my entry points. In my Oct 4th Energy Update, I presented the short-term and long-term factors supporting higher Natural Gas and Electricity prices, and my concern was the polices leading to today’s high prices were not abating, they were becoming more entrenched here and abroad.
Since last week’s report I studied past years when Natural Gas rallied into the fall from lower prices and discovered there were four years with patterns similar to this year, 2000, 2002, 2005 and 2013. And in each case, Natural Gas experienced a pullback in the fall prior to rallying to a new high in December.
As you can see in 2000, after reaching its fall low, Natural Gas rallied to a much higher new high in December.
Again, as in 2000, in 2002, after reaching its fall low, Natural Gas rallied to a much higher new high in December.
2005 was a little different in that after reach it’s fall low, Natural Gas’ rally in December was only slightly higher than it’s previous high, but it was still a higher-high.
And lastly, as in 2000 and 2002, in 2013 after reaching it fall low, Natural Gas rallied to a much higher new high in December.
Therefore, based on these four charts, it was not surprising with NOAA forecasting milder than normal weather over the next 8 to 14 days, Natural Gas pulled back from a seven year high. But based on today’s fundamentals should we expect Natural Gas will rally to a new high in December as it did in 2000, 2002, 2005, and 2013?
I believe it will, but to understand why, you must remember Natural Gas’ present rally is based on the long-term and short-term factors discussed in my Oct 4th Energy Update. It rallied this year due to the Biden’s administration’s energy policies and fear of inflation in the U.S., along with a 10-year low in Europe’s Natural Gas supplies caused by their green energy policies.
And as I wrote last week, if we experience a colder than normal winter analyst are warning Natural Gas prices could be above $10 per MMBtu. I was not predicting it would happen, but it is certainly a possibility.
But why similar to 2000, 2002, 2005 and 2013 should we expect after completing its fall low, Natural Gas will likely make a new high in December?
It is based on the fact that although the fear of a cold winter is factored into the market, it is too early for the market to know for sure it will happen; therefore, a pullback now is not surprising, but after reaching its fall low due mild weather as we move closer to the winter hedgers will reenter the market and likely push the market to a new high in December.
If we don’t experience a cold winter than similar to 2000 and 2005, Natural Gas will decline from its December High, but if we experience a colder than normal winter, then similar to 2002 and 2013, Natural Gas will far surpass it December high next year.
But either way, I believe Natural Gas will be higher in December than where it is presently, and it would be wise to take advantage of the current mild weather pullback to secure hedges.
As I wrote in last week’s report, No one knows for sure where Natural Gas and Electricity prices will be over the next 6-months, but I firmly believe as stated in my most recent reports, 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.
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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