*Natural gas could be a good friend of bulls during the upcoming weeks to form a seasonal peak
*Natural gas could be a good friend of bulls during the upcoming weeks
The natural-gas market is tight right now and may get even tighter by the end of the year. US weather has been overall supportive, coming out of the coldest winter for a couple of years, and this summer looks like it will also be quite hot. High temperatures lead to more air-conditioner use, boosting demand on gas-fired generators. The $3 mark seems to be the emotional reference point where you see prices rebound.
The Energy Information Administration expects 2021 US natural-gas consumption to fall 0.7% from 2020, with the decline due in part to electric-power generators switching to coal from natural gas because of higher natural-gas prices. In the medium term, natural-gas prices are likely to stay close to the $3 mark, and average just under that threshold this year, says analyst.
Climate initiatives will support gas demand in the medium term, as coal is phased out, but this will take time to be implemented. The US Energy Information Administration reported on Thursday that domestic supplies of natural gas rose by 98 billion cubic feet for the week ended May 28. That was smaller than the increase of 118 billion cubic feet forecast by IHS Markit.
Total stocks now stand at 2.313 trillion cubic feet, down 386 billion cubic feet from a year ago and 61 billion cubic feet below the five-year average. Natural gas futures for July delivery on the New York Mercantile Exchange’s Henry Hub stood at $3.075 per mmBtu on Friday today, It traded at $3.046 shortly before the data.
Weather models so far have largely maintained the warm outlook, according to forecaster Bespoke. NatGasWeather said the 15-day outlook remained “plenty hot enough” for June 6-12. The weather data needs close watching for this important June 13-17 period because (of) any further cooler trends, and it could lead to disappointment. Undoubtedly, natural gas could be a good friend of bulls during the upcoming weeks to form a seasonal peak in October-December 2021.
The natural gas futures started this week with a gap-up opening at $3.032 and registered high of 3.149 on 1 June which is the highest level in last 3-1/2 months. This is evidence of growing bullish sentiments in natural gas futures. The reason for this growing strength could be the entry of big bulls who love to trade natural gas well above the psychological support at $3.
Generally, the demand and supply equation define the directional moves of natural gas. Baker Hughes rig count reported last Friday that the number of active US natural gas drilling rigs in the week ended May 28 fell by -1 rig to 98 rigs, well above the record low of 68 rigs posted in July 2020.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 4-6-2021