Why Did Natural Gas Prices Just Rise 25% In Two Weeks?# Stock
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Natural gas prices have run up phenomenally since the June contract expired
on 26 May at $1.963/mmBtu. The natural gas prices touched an intraday high
of $2.48/mmBtu on 6 June before closing flat for the day.
Since October 2015, prices have not been able to cross the strong resistance
area of $2.5/mmBtu, as seen in the chart below. Do the fundamentals support
a breakout and higher prices in the coming weeks, or will we see a move
back into the range?
We have to consider supply and demand, along with inventory data to
understand whether prices justify their sharp rise, within such a short span
of time.
Storage
Though natural gas storage levels remain elevated, the supply glut is
slowing compared to analysts’ expectations. As of 27 May, the Energy
Information Administration reported natural gas inventories of 2,907 Billion
cubic feet, an increase of 82 Bcf, which was below the consensus
expectations of 86-Bcf, according to The Wall Street Journal.
In the previous week, inventories were 37 percent above five-year average
levels compared to the same week in 2015; however, this week the surplus
shrank to 35 percent above five-year average levels. This is an indication
of a diminishing surplus.
"The 82 Bcf net injection into storage for last week was slightly less than
the consensus view and below the 98 Bcf five-year average for the date, and
so at least somewhat supportive for prices," said Tim Evans of Citi Futures
Perspective.
"The build was also well below our model's 96 Bcf forecast, and so will
translate into a more bullish baseline for the reports to follow," reports
Natural Gas Intel.
Demand and Supply
In the long-term, the demand for natural gas is on the rise, as outlined in
the EIA’s Annual Energy Outlook. However, in the short-term, the immediate
demand for natural gas influences prices. Mild winter conditions were partly
to blame for the record low prices in March of this year, along with the
excess supply.
Related: Rebound In Oil Prices Changes Drillers’ Mindset
However, the recent forecast of a hotter summer is expected to increase the
air conditioning requirements leading to increased gas-powered electricity.
“With the weather once again changing to another warming trend, the market
is looking for a bump up in consumption at a time when production may be
starting to ease,” said Dominick Chirichella, an analyst at the Energy
Management Institute, reports The Wall Street Journal.
The natural gas rig count fell by five rigs to 82, according to the Baker
Hughes rig count report for the week ending 3 June. The rig count has
dropped 63.1 percent year-over-year.
Experts believe that though consumption will increase, supply will not
return as quickly as the EIA anticipates, which will lead to a reduction in
storage levels and increased gas prices.
Related: Norway Set To Ban Fossil Fuel Cars In 2025
The current prices are close to the forecast of the World Bank estimates of
$2.5/mmBtu and slightly above the EIA forecast of $2.32/mmBtu for 2016.
Considering the sharp run-up in the last few days, natural gas prices are
likely to consolidate their gains, waiting for the fundamentals to catch up.
A material change to the existing demand and supply situation is needed for
the prices to break out of the stiff resistance level of $2.5/mmBtu.
By Rakesh Upadhyay for Oilprice.com
on 26 May at $1.963/mmBtu. The natural gas prices touched an intraday high
of $2.48/mmBtu on 6 June before closing flat for the day.
Since October 2015, prices have not been able to cross the strong resistance
area of $2.5/mmBtu, as seen in the chart below. Do the fundamentals support
a breakout and higher prices in the coming weeks, or will we see a move
back into the range?
We have to consider supply and demand, along with inventory data to
understand whether prices justify their sharp rise, within such a short span
of time.
Storage
Though natural gas storage levels remain elevated, the supply glut is
slowing compared to analysts’ expectations. As of 27 May, the Energy
Information Administration reported natural gas inventories of 2,907 Billion
cubic feet, an increase of 82 Bcf, which was below the consensus
expectations of 86-Bcf, according to The Wall Street Journal.
In the previous week, inventories were 37 percent above five-year average
levels compared to the same week in 2015; however, this week the surplus
shrank to 35 percent above five-year average levels. This is an indication
of a diminishing surplus.
"The 82 Bcf net injection into storage for last week was slightly less than
the consensus view and below the 98 Bcf five-year average for the date, and
so at least somewhat supportive for prices," said Tim Evans of Citi Futures
Perspective.
"The build was also well below our model's 96 Bcf forecast, and so will
translate into a more bullish baseline for the reports to follow," reports
Natural Gas Intel.
Demand and Supply
In the long-term, the demand for natural gas is on the rise, as outlined in
the EIA’s Annual Energy Outlook. However, in the short-term, the immediate
demand for natural gas influences prices. Mild winter conditions were partly
to blame for the record low prices in March of this year, along with the
excess supply.
Related: Rebound In Oil Prices Changes Drillers’ Mindset
However, the recent forecast of a hotter summer is expected to increase the
air conditioning requirements leading to increased gas-powered electricity.
“With the weather once again changing to another warming trend, the market
is looking for a bump up in consumption at a time when production may be
starting to ease,” said Dominick Chirichella, an analyst at the Energy
Management Institute, reports The Wall Street Journal.
The natural gas rig count fell by five rigs to 82, according to the Baker
Hughes rig count report for the week ending 3 June. The rig count has
dropped 63.1 percent year-over-year.
Experts believe that though consumption will increase, supply will not
return as quickly as the EIA anticipates, which will lead to a reduction in
storage levels and increased gas prices.
Related: Norway Set To Ban Fossil Fuel Cars In 2025
The current prices are close to the forecast of the World Bank estimates of
$2.5/mmBtu and slightly above the EIA forecast of $2.32/mmBtu for 2016.
Considering the sharp run-up in the last few days, natural gas prices are
likely to consolidate their gains, waiting for the fundamentals to catch up.
A material change to the existing demand and supply situation is needed for
the prices to break out of the stiff resistance level of $2.5/mmBtu.
By Rakesh Upadhyay for Oilprice.com
