Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Short-term Stock Market Trend Analysis - 6th Mar 21
Intel Rocket Lake EXPLODE on Launch - 11th Gen CPU's RUN VERY HOT Bad Cinebench R20 Scores - 6th Mar 21
US & UK Head for Post Coronavirus Pandemic Lockdown Inflationary Economic BOOM - 6th Mar 21
FED Balance Sheet Current State - 5th Mar 21
The Global Vaccine Race Against Time and Variants - 5th Mar 21
US Treasury Yields Rally May Trigger A Crazy Ivan Event (Again) In Stock Market - 5th Mar 21
After Gold’s Slide, What Happens to Miners? - 5th Mar 21
Racism Pandemic Why UK Black and Asians NOT Getting Vaccinated - NHS Covid-19 BAME - 5th Mar 21
Get Ready for Inflation Mega-trend to Surge 2021 - 4th Mar 21
Stocks, Gold – Rebound or Dead Cat Bounce? - 4th Mar 21
The Top Technologies That Are Transforming the Casino Industry - 4th Mar 21
How to Get RICH Crypto Mining Bitcoin, Ethereum With NiceHash - 4th Mar 21
Coronavirus Pandemic Vaccines Indicator Current State - 3rd Mar 21
AI Tech Stocks Investing 2021 Buy Ratings, Levels and Valuations Explained - 3rd Mar 21
Stock Market Bull Trend in Jeopardy - 3rd Mar 21
New Global Reserve Currency? - 3rd Mar 21
Gold To Monetary Base Ratio Says No Hyperinflation - 3rd Mar 21
US Fed Grilled about Its Unsound Currency, Digital Currency Schemes - 3rd Mar 21
The Case Against Inflation - 3rd Mar 21
How to Start Crypto Mining Bitcoins, Ethereum with Your Desktop PC, Laptop with NiceHash - 3rd Mar 21
AI Tech Stocks Investing Portfolio Buying Levels and Valuations 2021 Explained - 2nd Mar 21
There’s A “Chip” Shortage: And TSMC Holds All The Cards - 2nd Mar 21
Why now might be a good time to buy gold and gold juniors - 2nd Mar 21
Silver Is Close To Something Big - 2nd Mar 21
Bitcoin: Let's Put 2 Heart-Pounding Price Drops into Perspective - 2nd Mar 21
Gold Stocks Spring Rally 2021 - 2nd Mar 21
US Housing Market Trend Forecast 2021 - 2nd Mar 21
Covid-19 Vaccinations US House Prices Trend Indicator 2021 - 2nd Mar 21
How blockchain technology will change the online casino - 2nd Mar 21
How Much PC RAM Memory is Good in 2021, 16gb, 32gb or 64gb? - 2nd Mar 21
US Housing Market House Prices Momentum Analysis - 26th Feb 21
FOMC Minutes Disappoint Gold Bulls - 26th Feb 21
Kiss of Life for Gold - 26th Feb 21
Congress May Increase The Moral Hazard Building In The Stock Market - 26th Feb 21
The “Oil Of The Future” Is Set To Soar In 2021 - 26th Feb 21
The Everything Stock Market Rally Continues - 25th Feb 21
Vaccine inequality: A new beginning or another missed opportunity? - 25th Feb 21
What's Next Move For Silver, Gold? Follow US Treasuries and Commodities To Find Out - 25th Feb 21
Warren Buffett Buys a Copper Stock! - 25th Feb 21
Work From Home Inflationary US House Prices BOOM! - 25th Feb 21
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Trading Natural Gas As The Season Changes

Commodities / Natural Gas Sep 16, 2019 - 05:32 PM GMT

By: Avi_Gilburt

Commodities

Andy Hecht: Natural gas can be one of the most volatile commodities that trade on the futures market. Since 1990, the price has traded from lows at $1.02 to a high at $15.65 per MMBtu. Over the past three decades, the fundamentals for the natural gas market gave changed dramatically. Discoveries of massive natural gas reserves in the Marcellus and Utica share regions of the US and technological advances in hydraulic fracking increased the supply side of the fundamental equation.

Since necessity is the mother of invention, natural gas has replaced coal in the US for power generation. At the same time, technology to liquefy natural gas has expanded the addressable market for the energy commodity. Natural gas used to depend on the US pipeline network for delivery. Today, it travels around the world in liquid form by ocean vessels. Therefore, the demand side of the fundamental equation in natural gas expanded with the supply side.


The growth of the natural gas market has caused volume and open interest in the future market to explode since 1990. Increased demand for hedging by producers and consumers combined with speculative interests in the market was a bonanza for liquidity. The growth of the market reduced some of the price volatility from the earlier years that took the price north of $10 per MMBtu. Natural gas has not traded above the $10 level since 2008, the $6.50 level since the same year, and above $5 since 2014.

Natural gas is a seasonal commodity. The price tends to peak during the time of the year when inventories decline from mid-November through March. The offseason runs from April through October. With the peak season for demand on the horizon, price volatility is picking up in the natural gas futures market.

The highest price since 2014 last November

Last November, as natural gas was entering the 2018/2019 time of the year when inventories decline, the price of the energy commodity exploded to the upside.

The monthly chart highlights the price rise from a low at around the $2.70 level during the summer months to a high at $4.929 per MMBtu in November 2018. At the start of the withdrawal season, the total amount of natural gas in storage in the United States rose to only 3.247 trillion cubic feet, the lowest level in years. The low level of stockpiles, uncertainty over the weather and demand for heating over the winter months, and an early cold snap created a perfect bullish storm for the natural gas futures market. The price rose to the highest level since 2014 at the start of the 2018/2019 winter season.

The lowest price since 2016 in August

The November 2018 high ran into selling at just below the $5 per MMBtu level. The demand for natural gas last winter did not send the amount of the energy commodity in storage below the one trillion cubic feet level. At the end of last winter, stocks fell to a low at 1.107 tcf. However, the price started dropping in December and posted eight consecutive months of losses.

Technical support for the natural gas market was at the $2.53 per MMBtu level, which was the low from February 2018. During the same month in 2017, natural gas fell to a bottom for the year at $2.522, so it appeared to put in a higher low. In February 2019, the trend seemed to continue as the low for the month was at $2.543 per MMBtu. However, in April, it moved through the 2018 and 2017 and kept on falling.

In August natural gas futures found a bottom at $2.029 per MMBtu, the lowest level since 2016 when the price fell to $1.611 per MMBtu, the lowest level since 1998. A warm winter and high levels of inventories drove the price to the lowest level of this century.

A technical break to the upside

After the early August low in the natural gas futures market, a recovery got underway.

The weekly chart illustrates that the low during the week of August 5 led to a rally that took the price higher in five of the last six weeks. The rally got some fuel as Hurricane Dorian approached the US in late August. Even though the storm did most of its damage in the Bahamas, the price of the energy commodity continued to gain. Another sign that natural gas was heading higher was that the inventory report from the EIA as of August 30 was bearish as the injection was higher than market expectations. When a market has reasons to move lower, and it continues to rise, it is a sign that the path of least resistance for the price is higher.

The level of critical support at the 2017 and 2018 lows at $2.53 and $2.522 gave way in April 2019, and the support levels became technical resistance when the price of the energy commodity traded to just over the $2 level in early August. Last week, natural gas took out those levels in post-summer trading and rose to a high at $2.648 per MMBtu. The October futures contract settled the week at $2.614, not far below the high of the week and well above the level of resistance at $2.53.

Trading natural gas as the season changes, and a note about the long-term prospects

As August gave way to September, the natural gas market that it is just a matter of time until cold weather descends over broad areas of the US and inventories begin to decline. As of the week ending on September 6, the total amount of natural gas in storage across the US stood at 3.019 tcf, 15% above last year’s level, but 2.5% below the five-year average for this time of the year according to the EIA.

Natural gas stocks will rise to a higher level than last year when the withdrawal season begins in mid-November, as stocks are likely to peak at the 3.7-3.8 tcf level. With nine weeks to go in the injection season, stocks are not likely to increase to a record level above the four trillion cubic feet level.

The weather conditions over the coming winter months will be the primary factor when it comes to the price path of the commodity. However, the uncertainty of the season is likely to create at least one significant rally over the coming months. The highest price for natural gas futures during the coming winter months was for the January futures contract which was at just over the $2.90 level after the recent rally.

The price of natural gas moved 58.5 cents per MMBtu higher since the early August low as of last Friday or 28.8%. The rally may have come a bit too early as we are only in the middle of September and the withdrawal season will not arrive until mid-November. Therefore, we should expect two-way volatility to increase over the coming days and weeks in the always volatile natural gas futures market.

When it comes to the longer-term direction of the price of natural gas, a comment by a candidate for President could cause a shift in expectations over the coming year. Senator Elizabeth Warren has said that she would end fracking in the US on the first day of her administration if elected. Since the US is now the Saudi Arabia of the natural gas market and has replaced Saudi Arabia as the world’s top oil-producing nation we could see lots of volatility in oil and gas prices if a significant amount of global supplies are impacted by a shift in US energy policy starting in early 2021. The reelection of the incumbent President would ensure a continuation of the US’s role as the leading producer of the two energy commodities. However, if Senator Warren’s energy proposal winds up in the platform of the Democratic party candidate, we could see a significant price reaction in all energy-related assets.

UGAZ and DGAZ for those who do not trade futures

When it comes to the short-term prospects for the natural gas market, we are entering into a time of the year when volatility tends to increase. The recent rally may have come a little too early, which means we may see some wider price swings over the coming days and weeks.

Price volatility creates a paradise for nimble traders with their fingers on the pulse of markets. The potential for price variance in the natural gas market makes it the Garden of Eden for opportunities at times. The most direct route for a risk position in the natural gas market is via the futures and future options that trade on the NYMEX division of the CME. For those who do not venture into the leveraged and volatile futures arena, the UGAZ and DGAZ bullish and bearish ETN products provide an alternative.

I would be a scale-down buyer of any price corrections over the coming weeks leading into the winter season. Natural gas is a market that offers volatility, and now is the time to put the energy commodity on your trading radar.

View original article with charts here.

Andy Hecht covers Commodities and Forex as one of the original contributing analysts at FATRADER.com. A former senior trader at one of the world’s leading commodities trading houses, Philipp Brothers (now part of Citigroup), Andy has worked and consulted for banks, hedge funds, and commodities producers and consumers around the world for over 35 years.

© 2019 Copyright Andy Hecht - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules