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The Window of Opportunity to Hedge Cost of Gas & Electricity May Be About to Close

https://youtu.be/kbCVdw-e-mo In my November 1st Energy Update, I said this year’s fall low may be the last opportunity to hedge

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In my November 1st Energy Update, I said this year’s fall low may be the last opportunity to hedge the cost of Natural Gas prior to prices surging to a new yearly high in December. I based this observation on past hedging patterns in 2000, 2002, 2005 and 2013, when Natural Gas rallied into the fall from lower prices, and in each case, prices pulled back prior to rallying to a new high in December.

In those four examples, the fall lows were reached between Oct 31st and Nov 13, therefore, I said we may reach an important low in the first half of November, after writing last week’s report, Natural Gas attempted a rally due to cooler than normal weather in the Northern regions, but as you can see Natural Gas is again declining and approaching an important technical indicator that in the past accurately revealed the fall low within a few days: :

The band you see enveloping Natural Gas prices is the Bollinger Band. Bollinger Bands are envelopes calculated at a standard deviation level above and below a simple moving average of the price. Because the distance of the bands is based on standard deviation, they adjust to volatility swings in the underlying price.

Bollinger Bands often help me to determine when a commodity’s price is at an extreme, and potentially ready to reverse, and the question is, was this tool helpful in determining the fall lows in 2000, 2002, 2005, and 2013?

 

Absolutely yes!

 

As you can see in the charts below, when Natural Gas prices declined to the lower Bollinger Band, the fall low was reached within 2 to 7 days.

2000

2005

2002

2013

Although no technical tool is perfect in predicting the direction of prices, I believe this tool in conjunction with what I wrote in previous reports leads me to believe we will likely reach this year’s fall low within the next week.

And although it is possible Natural Gas prices may decline a little more from present levels, I believe the risk/reward of waiting for lower prices is not wise, and I hope this report helps you appreciate the wisdom of protecting yourself now against the likelihood of higher prices not only near-term, but most importantly long-term.

As I have written in previous reports, this year’s rally was primarily due to the Biden’s administration’s restrictive 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 my concern is the polices leading to today’s high prices are not abating, they are becoming more entrenched here and abroad.

No one knows for sure where Natural Gas and Electricity prices will be over the next 6-months, but three years from now, I believe you will 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.

 

Written by
Ray Franklin
Energy Professionals
Senior Commodity Analyst

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