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Natural Gas In Need Of Fresh Buying Volumes

Published 01/30/2021, 09:08 AM
Updated 07/09/2023, 06:32 AM

Natural Gas futures on the NYMEX had a volatile week before closing 4% higher than a week ago at $2.55. EIA confirmed on Thursday a rather average withdrawal of 128 Bcf in working underground stocks for the week ended January 22. Stocks currently at 2,881 Bcf, 2.8% higher y/y, 9.3% above the 5-year average. Both percentages are again on the ascending.

The price tried to bounce from the bottom of the fourth leg of this post-winter downtrend, in reality it has been ranging widely between $2.30 and $2.75 in the past two months. We still have no interest in buying operations. The $2.60 level must now offer resistance for the market to naturally exhaust to fresh lows until the end of May. Then we expect a reversal until the winter of 2022. January 22 contract has been trading flat at $3.00 for quite some time now. Price remains 40% higher y/y. We are looking to sell new rallies on exhaustion on term term chart while trading directionally. Ranges must move lower.

Production is comfortably keeping pace with demand while online rigs are now 23% fewer than a year ago. Total consumption is down 7 Bcf/d y/y, while supply is only 3 Bcf/d lower at the same period. The industry's consolidation is ongoing, the new administration is providing more visibility but at the end of the day, we believe that the seasonality feature will not get affected much for another year.

Fundamentals have been already factored-in and they have been remaining flat if not negative since 2016. Natural Gas must compete hard for the domestic electricity generation market share which absorbs more than 35% of total production. EIA now forecasts that electricity generation from U.S. gas-fired power plants will decline by about 8% in 2021. Renewables will grab this market share. Industrial and commercial demand will also get challenged.

It was in January last year, when we talked about RENIXX, the global stock index tracking the 30 largest companies of the renewable energy industry worldwide by market capitalization. It stood 60% higher y/y at a time when most of oil and gas companies were trading from 50% to 90% lower y/y. RENIXX has gained another 195% since last January. The U.S. macro data and the Dollar Index to be routinely monitored. Daily, 4hour, 15min MACD and RSI are pointing entry areas.

Natural Gas 4-H Chart

Latest comments

You don’t seem to assign much value to the Biden assault on the energy producers and consumers. Why?
1. an assault? this term is too simplistic. Biden wasn't in charge in 2016 lows. He wasn't in charge either when some states begun banning NG from new industrial buildings, commercial ones and new homes. He wasn't in charge when flaring levels had to be lowered in a number of states. He wasn't in charge while the whole NY pipeline network needed renovation and reconstruction. The whole state is still sitting on a bomb. This is a 3year old weekly analysis. I am objective and I have been trading the near term charts very successfully for the last ten years providing hedging also to American producers.
2. My fundamental view throughout the past years is that the NG will still be with us for many more years to come, it is an unbelievable important commodity as it is going to be the last fossil on earth that will burn as it is going to be the bridge fuel to a whole new era. But it has to be cheap enough because of new competition. And it has to be cleaner too. Technology is already helping the industry overall with that. Its price will be its most important asset I believe. Its most important marketing tool. Pipeline transition will always be cheaper than LNG transportation. Biden wasn't in charge either when Trump had tough times in finding new clients overseas.  U.S. NG's Technically Recoverable Resources are at record high while demand is being challenged. I firmly believe though that, through technicalities, its seasonality feature will be justifiable for the years to come.
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