Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

A Bullish Summer In Natural Gas As Peak Season Is On The Horizon

By Andy HechtCommoditiesAug 20, 2021 04:56AM ET
www.investing.com/analysis/a-bullish-summer-in-natural-gas-as-peak-season-is-on-the-horizon-200599331
A Bullish Summer In Natural Gas As Peak Season Is On The Horizon
By Andy Hecht   |  Aug 20, 2021 04:56AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
D
-2.74%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CL
-1.83%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
NG
-0.70%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BRKa
-0.06%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

This article was written exclusively for Investing.com

  • A new high and a correction
  • Natural gas reached the highest price in August since 2011
  • A higher base price because of US energy policy
  • Warren Buffet saw value in June 2020
  • Expect a wild ride this winter- Inventories are low

When producers extract natural gas from the earth’s crust, the energy commodity is highly combustible. The price action in the natural gas futures arena can be just as volatile because the market has a three-decade history of price explosions and implosions. Since natural gas began trading on the CME’s NYMEX division in 1990, the price range has been $1.02 to $15.65 per MMBtu. Natural gas rose above the $10 level when hurricanes wreaked havoc along the US Gulf Coast in 2005 and 2008. The NYMEX delivery point is the Henry Hub in Erath, Louisiana.

Massive discoveries of quadrillions of cubic feet of reserves in the Marcellus and Utica shale regions of the US caused the price to decline. As necessity is often the mother of invention, the demand side of the energy commodity’s fundamental equation adapted. Natural gas replaced coal in US power generation. Technological advances allowed for liquefying natural gas for export beyond the pipeline system. Today, US LNG travels by ocean vessels to areas of the world where the price is appreciably higher.

Over the past year, natural gas had made higher lows and higher highs. At a time of the year when the price traditionally experiences weakness, the energy commodity continued to rise, reaching its latest peak in early August at $4.205 per MMBtu, the highest price since late 2018. Meanwhile, natural gas rose to the highest price in August in a decade.

A new high and a correction

After reaching a low of $2.594 on Mar. 18, September natural gas futures made higher lows and higher highs, reaching a peak at $4.2050 per MMBtu on Aug. 4 and 5.

Natural Gas Daily
Natural Gas Daily

Source: CQG

The daily chart highlights the rise to a double top in early August, with nearby natural gas futures reaching the highest price since November 2018. The double top began a correction that took the price to a low of $3.789 on Aug. 18 before bouncing over $3.80 per MMBtu by the close on Aug. 18. Open interest, the total number of open long and short positions in the natural gas futures market, rose with the energy commodity’s price, typically a technical validation of a bullish trend in a futures market. The correction pushed the price momentum and relative strength indicators below neutral readings. Daily historical volatility was steady at just below 30%. The trend remains bullish as September futures did not challenge the first technical support level at the July 7, $3.495 per MMBtu low.

Natural gas reached the highest price in August since 2011

While natural gas reached the highest price since November 2018 at the start of the peak demand season, it moved to the highest price in August in a decade. After reaching a twenty-five-year low in June 2018, the energy commodity traded to the highest price in August since 2011.

Natural Gas Monthly
Natural Gas Monthly

Source: CQG

The monthly chart shows that the last time natural gas futures were above the $4 per MMBtu level in August was in 2011.

Increasing energy demand in 2021 on the back of vaccines and an easing of social distancing guidelines, robust and growing worldwide demand for US LNG, and warmer than average temperatures increasing the requirements for cooling lifted natural gas’s price over the past months. However, the shift in US energy policy has been more than a cherry on top of the other bullish factors.

A higher base price because of US energy policy

On his first day in office, President Biden canceled the Keystone XL oil pipeline project. In May, his administration banned drilling and fracking for oil and gas on federal lands in Alaska. The President has followed through on his campaign pledge to address climate change by initiating a dramatic shift in US energy policy. The administration has embraced a greener path away from dependence on fossil fuels. Increasing regulations and funding for alternative energy sources is weighing on crude oil and natural gas output.

Meanwhile, the US still depends on hydrocarbons for power. Most of the transportation infrastructure runs on oil products, and natural gas replaced coal for power generation. The demand side of natural gas’s fundamental equation is rising while supplies are falling because of the shift in energy policy. We should expect rising base prices for oil and gas as the US output declines under the current administration.

Warren Buffet saw value in June 2020

Warren Buffett lived up to his reputation as a leading value investor last June. When natural gas fell to its quarter-of-century low in late June, his Berkshire Hathaway (NYSE:BRKa) purchased the natural gas transmission and storage assets from Dominion Energy (NYSE:D) at a bargain price of $10 billion. Buffett paid $4 billion in cash and assumed $6 billion in debt. The acquisition increased Berkshire’s exposure to all US interstate natural gas transmission from 8% to 18%.

The price of natural gas nearly tripled from the June 2020 low at the most recent high. One year later, Warren Buffet’s investment was golden as he bought the low in the energy commodity.

Expect a wild ride this winter- Inventories are low

We are now approaching the time of the year when natural gas begins shifting towards winter, peak season mode. Natural gas tends to reach highs during the winter months as demand for heating rises. The first target stands at the November 2018 $4.929 per MMBtu high. Above there, in early 2014, the nearby futures contract reached $6.4930 per MMBtu.

The shift in US energy policy is weighing on output while LNG demand is increasing natural gas demand. The most recent inventory data from the Energy Information Administration (EIA) reveals that natural gas stockpiles are at low levels compared to previous years.


Gas Storage Weekly
Gas Storage Weekly

Source: EIA

The chart shows that natural gas in storage across the United States stood at 2.776 trillion cubic feet for the week ending on Aug. 6. The inventories were 16.5% below the same time in 2020 and 6% under the five-year average for early August. Meanwhile, the crowdsourcing platform Estimize currently has a consensus forecast for an injection of only 24.69 bcf for the week ending on Aug. 13.

At the end of the past three injection seasons in November, natural gas stocks stood at the following levels:

  • In 2020 inventories peaked at 3.958 tcf
  • In 2019, the high was at 3.732 tcf
  • In 2018, stocks topped out at 3.234
  • Based on the flows into storage over the 2021 injection season, inventories look likely to go into the winter months when stocks fall at the lowest level in years.

Fasten your seatbelts; the 2021/2022 winter season could be a wild ride in the natural gas futures arena.

A Bullish Summer In Natural Gas As Peak Season Is On The Horizon
 

Related Articles

Chris Vermeulen
Gold: A Repet Of 2008?   By Chris Vermeulen - Sep 30, 2022 4

It has been an interesting year, with stocks down nearly 25% and the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) down over 40% since the 2020 highs. The passive buy-and-hold...

Phil Flynn
The Energy Report: Danger’s Lurking By Phil Flynn - Sep 30, 2022 1

Oil prices are still trying to bottom but are set for their first quarterly loss since 2020. The focus in the oil market is not about current supply and demand any more but the...

A Bullish Summer In Natural Gas As Peak Season Is On The Horizon

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email