Natural gas bulls have been riding the gravy train for the better part of 2021. Remarkably, natural gas prices have skyrocketed 115% since the beginning of the year, outperforming price increases in other commodities like oats (up by 63.83% YTD), copper (up by 19.65% YTD), and steel (up by 38.27% YTD).
At the time of writing, natural gas is trading at $5.592 per million British thermal units, a thirteen-year high for the commodity.
The Reason For The Meteoric Rise In Natural Gas
An unusually scorching 2021 summer in the US drove demand for air conditioning and natural gas beyond normal levels, resulting in a lower stockpile of the commodity for a freezing winter. Following this, extreme weather conditions, such as Hurricane Ida, interrupted natural gas extraction in the Gulf of Mexico's most productive zone.
Could The Price of Natural Gas Recede?
Typically, when the price of a commodity rises, new investments will enter the market to scoop up the high prices. The new investment could be from gas companies lifting output at existing gas wells or exploring new wells to raise production.
Counter-productively, the new investment and resulting lift in gas supply would help suppress the price rises in the commodity.
New investments in natural gas have stalled as of late. While we will still need fossil fuels for a long time, so-called 'Zero Carbon' policies from governing bodies worldwide are disincentivizing natural gas exploration.
The long-term prospects of natural gas wells are uncertain and less attractive when contending with the likes of the Biden administration throwing its full support behind renewable energy sources as the US engages in a wide-scale upgrade to its infrastructure.
The Biden Administration aims to have the US electric obtain 50% of the power it uses from solar energy sources within the next thirty years. Achieving this goal would severely squeeze demand for natural gas, which, according to the EPA, generated approximately 40% of the country's electricity in 2020.
Natural Gas Technical Price Analysis
In this video, we analyze possible trading zones to eye for future movements in the commodity.