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Natural Gas Could Rise Well Beyond $10, But Significant Volatility Seen At The Top

By Investing.com (Barani Krishnan/Investing.com)CommoditiesMay 05, 2022 04:39AM ET
www.investing.com/analysis/natural-gas-could-rise-well-beyond-10-but-significant-volatility-seen-at-the-top-200623547
Natural Gas Could Rise Well Beyond $10, But Significant Volatility Seen At The Top
By Investing.com (Barani Krishnan/Investing.com)   |  May 05, 2022 04:39AM ET
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Had one been told back in December—before the Russia-Ukraine drama really got heated up—that natural gas would be double the price by April, the temptation might have been to laugh. But here we are, just over four months later, with the debate having humorously shifted to whether gas prices will stop rising after getting to double digits.

Technical charts suggest that this year’s 130% rally on the Henry Hub will push on, making $10 or more for a million metric British thermal units (mmBtu) a real possibility. 

Natural Gas Daily
Natural Gas Daily

Charts courtesy of skcharting.com

“Momentum indicators suggest that we have entered into a new bull market that has enough steam to reach beyond $9 and $10 per mmBtu,” Sunil Kumar Dixit, chief technical strategist at skcharting.com said.

Dixit said the bullish build came in mid-March as Henry Hub’s 50-Day Exponential Moving Average crossed the 100- and 200-Day Simple Moving Average. 

Now, monthly chart stochastics and Relative Strength Index readings point to bigger aims for Henry Hub futures, he said.

“Once gas settles above $10 and $8 - $10 become a new normal, look for $13 highs,” Dixit said. 

Interestingly, the last time gas went from $8 to $9 and then to $13 was all in 2008, in a rally that occurred in back to back months between February and July that year.

Natural Gas Monthly
Natural Gas Monthly

Charts courtesy of skcharting.com

Dixit noted that gas' prior drop from $8.065 to $6.345 would have  been a “good time” to go long as the swing lower was strongly supported by the middle Bollinger Band on Henry Hub’s daily chart. “Those who are late to the party can wait for a correction to $8 and $7 for the next leg higher,” he said.

Natural Gas Storage
Natural Gas Storage

Source: Gelber & Associates

Forecasts for gas-in-storage, meanwhile, indicate that the supply situation over the coming weeks might not be as dire as now, with the advent of warmer weather seen canceling indoor heating demand well before the need for strong cooling arises across the United States. 

At that point, volatility at the top—an inherent trait of natural gas—could shave a spectacular 20-30% off the price, prompting a retreat back to $8-$7 levels, even if storage then remains at a deficit to five-year levels. 

That aligns with Dixit’s call that latecomers to the rally can still hope to wait to catch the market on on its swing lower.

“The rise past $8 has been somewhat reminiscent of the old pre-shale era of gas trading, with extremely high volatility and intense, spastic moves to the upside,” analysts at Houston-based gas markets consultancy Gelber & Associates told clients of the firm in an email on Wednesday.

“​​There are signs that the current ~292 billion cubic feet (bcf) deficit could begin to ease in May as a result of several higher than average storage injections,” the analysts added.

National temperatures in the United States have firmly made their way into the mid-60 Fahrenheit levels, and will likely continue to push additional gas into storage.

Notwithstanding the price volatility, which in itself is sometimes more of a function of technicals and a question of which side has the stronger hand, production has no guarantee of growing by leaps and bounds to keep prices sufficiently depressed, the analysts at Gelber & Associates said. 

“Production growth has been stymied by ongoing labor shortages and supply chain issues,” the team noted. 

“Additionally, with rising coal prices, fuel switching has done little to abate incoming natural gas demand over the summer. The market’s normal negative feedback loops used to combat higher prices are nowhere to be seen, and until production makes an appearance, the solution for higher prices will always be higher prices.” 

The latest debate over the price, direction and storage of gas comes ahead of the US Energy Information Administration’s weekly inventory update, with industry analysts predicting a higher input of 68 bcf versus the previous week’s injection of 40 bcf.

Production on Wednesday remained more than 2 bcf below the highs of this year, wounded by late-April blizzards in North Dakota and the Rockies, as well as maintenance in the Northeast and Texas, forecaster NatGasWeather noted.

With production hampered by spring maintenance and a slow recovery from April storms, the firm said demand through next week should be strong enough to keep natural gas storage deficits near or slightly above 300 bcf “before minor improvements are possible May 12-20.”

“Essentially, the background state will remain relatively bullish into the foreseeable future unless there were to be a notable jump in Lower 48 production,” NatGasWeather said.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Natural Gas Could Rise Well Beyond $10, But Significant Volatility Seen At The Top
 

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Natural Gas Could Rise Well Beyond $10, But Significant Volatility Seen At The Top

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Comments (8)
Hirensoni Bsoni
Hirensoni Bsoni May 08, 2022 2:27AM ET
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I think it's complete 4th wavenow watch closely how the price react at 7.500 or 7.000 retrece.
Phong Nguyen
Phong Nguyen May 07, 2022 2:58PM ET
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I believe that NG price is way overpriced designed by crooks to take advantage on Russia n Ukraine war. NG Price is at all time high in oast 15 yrs us so absolutely absurd! US Never ever faced shortage of NG ! US is number NG producer on the world ! US always has plenty of NG and why the people in this country have to face with stiff price ? This ridiculously overpriced will have to drop especially at the period of demands for NG at the lowest point of all season. It is a crime for NG selling at this outrageous price.
sundar murthy
sundar murthy May 05, 2022 10:28PM ET
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Mr Barani, i have a doubt when Russian Ukraine war started aluminium and few others rose drastically but now have corrected but the war has not ended. this bull run on NG is driven on expectations rather than reality. i request you to post counter scenarios too. pls also let me know what r the good sites which i can through to analyze like you
Silvio Marano
Silvio Marano May 05, 2022 5:45PM ET
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Ukraine situation cannot justify similar prices on United States natural gas. The US gas is constrained by LNG export capacity that is already at its limit and cannot grow anytime soon because have to be developed liquefaction plants and vessel able to carry it on US side and regassification plants on countries supposed to receive it. It's absurd to see some people talking about Ukraine situation, ignoring this fundamental fact reasoning as if Europe can receive gas from US with some imaginary transoceanic pipeline.
SunilKumar Dixit
SunilKumarDixit May 05, 2022 11:07AM ET
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As the prices are taking a breather after the recent peak, some momentum distribution can see gas rebalancing to $7.9 and $7.4 before any new attempt to resume the rally to $9 and above.
Barani Krishnan
Barani Krishnan May 05, 2022 11:07AM ET
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Yes, it's moving within the band you had called. Thanks for the collaboration, Sunil.
Nitin Salunke
Nitin Salunke May 05, 2022 9:18AM ET
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See natural gas soon below $5
Barani Krishnan
Barani Krishnan May 05, 2022 9:18AM ET
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This is an extremely volatile market; anything's likely though the deficit to 5-year inventory levels suggest it may not sustain at the lows.
Dalibor Balgac
Dalibor Balgac May 05, 2022 9:18AM ET
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Barani Krishnan  Production is start rising again over the weekend, with the last print hitting 95.4 bcf/d for Sunday (day before was 95.9 bcf/d - a high for this year!). With EOS storage hitting 3,700 -tish bcf in October it's fundamentally unjustifed for price to stand at this level, or even higher.
Mohd Izhar Muslim
Mohd Izhar Muslim May 05, 2022 5:53AM ET
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Thank you for the article 👍
Barani Krishnan
Barani Krishnan May 05, 2022 5:53AM ET
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Thanks for reading, Mohd Izhar.
Ricky Wu
Ricky Wu May 05, 2022 4:54AM ET
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another bump and dump natgas guy, 2 articles from 2 guys in a row same day, big funds looking for exit, wonder how much they get paid writing an article, by number of words, this article seems a bit long.... but tks for all the signal
Barani Krishnan
Barani Krishnan May 05, 2022 4:54AM ET
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Looking at your commenting history, every article that speaks of a market headed for its highs and possible consolidation is immediately identified by you as enabling a "pump-and-dump"; be it natty, silver or gold. It doesn't matter to you if the writers are simply flagging a directional change that's imminent; your limited capacity for thinking tells you that they are mere mercenaries for market disruption. My counsel to you is let us do our job -- reporting and analyzing market direction -- while you do yours: trading. Also, I do what I do without fear or favor, and I believe that's the case as well with my colleague on this platform Chris Kimble -- who unfortunately decided to file a natgas story too for today, LOL.
SunilKumar Dixit
SunilKumarDixit May 05, 2022 4:54AM ET
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Ricky WU. It's not unusual to see someone getting uneasy when a commodity goes on a parabolic move. Whenever any commodity shows strong momentum, most of the traders are found to be on the wrong side of the trade. As far as the author and the article is concerned, they present the prevailing scenario and the probabilities based on market dynamics. We always appreciate rational feedback from the readers, however, comments with malice deserve sympathy. Best of luck.
 
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