Update: of Feb 1st Energy Alert

My reports focus on Natural Gas rates because it is the largest source of energy for the generation of Electricity in many regions; therefore, Natural Gas and Electricity rates are highly correlated.

In my Feb 1st Energy Alert, I said we might be near completion of a head & shoulders pattern, which is an important technical pattern associated with major bottoms. To complete the pattern Natural Gas needed to again trade briefly below $2.00 per MMbtu.

Below is an updated chart of Natural Gas showing what has taken place since my Feb 1^st Energy Alert.

As you see in the above chart, immediately after my Feb 1^st Energy Alert, Natural Gas declined from its closing price of $2.152 per MMbtu on Feb 1^st to a low of $1.954 after last week’s bearish storage report on Thursday. The report indicated less Natural Gas was taken from storage than anticipated, which put downward pressure on prices, but prices held exactly where they needed to complete the right shoulder I discussed in last week’s Energy Alert.

As I am writing this update, Natural Gas is trading at $2.148 per MMbtu and appears to have completed the head & shoulders pattern. Therefore, the risk of prices moving higher from here both short and long-term is extremely high, especially in light of what I discussed in my Feb 1^st Energy Alert. Remember, in the 7 instances over the last 20 years when Natural Gas traded below $2.00 per MMbtu, its average price was always higher over the following 12, 24 & 36 months.

The take away from this analysis is now that Natural Gas has completed the head and shoulders pattern, which is associated with a major bottom, prices are poised in the short and long term to move significantly higher from present levels.

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 at this time. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Senior Commodity Analyst
727-400-3170