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Natural Gas Not Looking Good As 2020 Starts

By uuzzw.com (Barani Krishnan/uuzzw.com)Jan 03, 2020 11:48AM ET
www.uuzzw.com/analysis/natural-gas-not-looking-good-as-2020-starts-200496078
Natural Gas Not Looking Good As 2020 Starts
By uuzzw.com (Barani Krishnan/uuzzw.com)   |  Jan 03, 2020 11:48AM ET
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A week ago, I started this column by asking if the natural gas market would be able to clear the $3 pricing bar early into the new year and hold above that level through the full winter schedule.

7x彩票网平台Now that 2020 is here, let me rephrase that by asking if gas prices will able to withhold $2 support first, before they progress any further. In other words, will the market get worse — i.e. testing the $1 ranges — before it can get better?

There are valid reasons to ask.

In just a week, February, the front-month gas futures contract7x彩票网平台 on the New York Mercantile Exchange’s Henry Hub, has plummeted almost 11 cents, or 5%, to settle Thursday at $2.122 per million metric British thermal units.

Gas Futures At 4-½ Month Bottom

7x彩票网平台The first trading day of 2020 brought a low of $2.116 per mmBtu to gas futures. That’s a 4-½ month bottom, going back to Aug. 13.

On a cumulative basis, Henry Hub’s front-month lost over 20 cents, or 9%, since the week ended Dec. 15. And March, the next-in-line contract to the front-month, struck a low of $2.088 on Thursday.

Natural Gas Futures Weekly Price Chart
Natural Gas Futures Weekly Price Chart

The price slump in natural gas is tied to the weather anomalies of last month, where the temperature on some days felt more like early October instead of the freeze typical before the cold season’s most intense months: January and February.

Spot Gas Under $2

In the spot market, gas is already trading below $2, with widespread mild temperatures encouraging further discounts at cash gas hubs across most of the United States. There were double-digit declines in the Rockies and California, according to natgasintel.com, which reported the national average pricing down 14.5 cents on Thursday at $1.915.

A winter that turns out to be less cold than initially thought isn’t new. The last time the United States experienced it was in 2012. The December 2011-February 2012 winter was the fourth warmest on record, with only nine of the 48 contiguous U.S. states experiencing “near-normal cold” in those three months.

Even then, Henry Hub’s front-month only got down to a low of $2.231 in January that winter. We’ve already beaten that low by nearly 12 cents this time.

uuzzw.com’s Daily Technical Outlook has a “Strong Sell” recommendation for February natural gas, projecting a bottom as low as $2.033 in the near-term.

More Threats From Record Output, Mild Weather

There are, of course, other things that could make it worse for gas bulls. Unyielding record highs in production and more periods of mild weather could result in lower gas burn rates for heating. The combination of these two will result in higher than normal storage of gas that will drive prices even lower.

According to the latest update available from the Energy Information Administration, gas in storage stood at 3.25 trillion cubic feet (tcf) for the week ended Dec 20. That is 525 billion cubic feet (bcf), or 19%, higher than the same week a year ago.

Analysts polled by uuzzw.com expect the EIA to announce a storage deficit of just 57 bcf for the week ended Dec. 27 in data due at 11:00 AM ET (16:00 GMT) today. That would be markedly lower than the previous week’s 161 bcf draw and the 89 bcf deficit averaged over the past five years.

January Draws Looking “Nothing Too Impressive”

“Draws from storage will rise as January goes on, but (will be) nothing too impressive for the heart of winter,” wrote Dan Myers, analyst at Houston-based gas consultancy Gelber & Associates.

7x彩票网平台According to natgasintel.com, the midday Global Forecast System (GFS) run added several heating degree days back to the outlook, but remained “little changed” compared to 24 hours prior.

“The latest GFS still forecasts an exceptionally bearish pattern through Jan. 15 besides a brief cold shot” for the northern portions of the United States around the middle of next week, the portal said, citing NatGasWeather data.

“Far From Cold Enough”

7x彩票网平台While Thursday’s guidance was “far from cold enough” through the first half of the month, the pattern held potential for some cold air from Western Canada to make its way into the United States beyond Jan. 15, NatGasWeather said, adding:

“It will need to be convincing to turn bearish weather sentiment bullish, and it will also require the European model to be on board with a colder pattern if it’s to be believed.”


7x彩票网平台Maxar’s Weather Desk similarly highlighted warmer trends for days six through 15 of the latest forecast window on Thursday.Further out in the Jan. 12-16 time frame, Maxar also predicted “prevalent” above-normal temperatures over the eastern half of the Lower 48 states.

Volatility Could Be In Store Too

Looking at historical price trends, analysts at EBW Analytics Group observed that for each of the past five years, prices have moved at least 10% between year-end and mid-January.

7x彩票网平台“In January 2018 and 2019, gas skyrocketed over 20% before receding,” the EBW analysts said. “Should weather forecasts turn colder and spur short-covering, a similar outcome may be in store this year.”

7x彩票网平台Still, for four of the past five years, the front-month contract fell by the end of January, according to the firm:

“On average, prices posted a 5% increase by mid-January before stumbling to a net 5% decline by the end of the month."

“In 2020, even if prices do briefly surge higher, an oversupplied seasonal outlook appears likely to reverse any short-term gains for natural gas.”

Natural Gas Not Looking Good As 2020 Starts
 
Natural Gas Not Looking Good As 2020 Starts

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Sherry Tem Jan 04, 2020 7:46AM ET
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American gasoline prices could rise in the coming weeks over fears about the potential fallout from the U.S. ****of an Iranian military leader. And those price hikes could escalate if the conflict intensifies.
GreenGreta Jan 04, 2020 7:46AM ET
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We know oil is up due to tensions. Gas will go up, but what does this have to do with natural gas?
OIL and NG Jan 04, 2020 1:47AM ET
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Thanks for the analysis. I see gas rig count coming down. Does it not translate to reduction in production in coming weeks and months? Your article still says record production.
OIL and NG Jan 04, 2020 1:47AM ET
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Sir - The reasin I say this is, i see the rig count was around 200 around this time last year to 123 as of 3-Jan2020. Can you please touch upon this!
GreenGreta Jan 03, 2020 4:50PM ET
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Thanks for the analysis. It's bleak. It's depressing. It's natural gas and betting on the weather. I'll just have to loan and add calls for summer every dime down to break even. My guess is lower. 1.9s don't think it's possible to go much lower than that. Then a quick spike up once production is cut to instill fear of deficits
Jacek Pob?ocki Jan 03, 2020 4:50PM ET
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good point of view ;-)
Barani Krishnan Jan 03, 2020 12:07PM ET
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Looks like the analysts nailed it again this week with the storage number. The official 58 bcf draw was virtually on spot with the 57 bcf consensus.
YesomiteSam Jan 03, 2020 11:49AM ET
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As always, nice objective view of the natgas market.? While I would like to see the market reverse he course but I agree that unless there is some meaningful sustained cold, we might see a $1 handle which would eventually cause more bankruptices.
Barani Krishnan Jan 03, 2020 11:49AM ET
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Thank you, YosemiteSam (nice avatar :)) It is what it is, this market.
Mark Irving Jan 03, 2020 11:02AM ET
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Thank you for the article and update. ?What about impacts on Liquified Natural Gas (LNG)?
Barani Krishnan Jan 03, 2020 11:02AM ET
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From India's Business Standard for now: " ...if Iran chooses to retaliate as out of total crude/ LNG travel through Strait of Hormuz, 80 per cent of crude and 69 per cent of LNG is exported to Asian countries (till Nov’19 end)". India's Reliance Securities has a?'Hold' on local company Petronet LNG "as any tension or closure of Strait of Hormuz can lead to LNG supply disruptions". (My own guess is it will take a while for this to hit LNG)
Ehab Adam Jan 03, 2020 9:21AM ET
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What you expect after Iran situation gas will go up or down?
Barani Krishnan Jan 03, 2020 9:21AM ET
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As of end-December, Iran was still pumping up production at its South Pars gas field.?Production?at?South Pars is expected tol rise to 175 million cubic metres (6.2 billion cubic feet) per day in 2012. Not sure what immediate, if any, an outright US-Iran war will have on that. It's a different battlefield altogether compared to oil, which you can see is already near $70 per barrel. Gas requires closer study.
Jacek Pob?ocki Jan 03, 2020 9:10AM ET
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Thanks for Your article and constructive conclusions. I can't found any useful and valuable analysys about gas since weeks.
Barani Krishnan Jan 03, 2020 9:10AM ET
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Thanks much, Jacek. Please do tweet us as well @Investingcom. My handle is @barani_krishnan
Jacek Pob?ocki Jan 03, 2020 9:10AM ET
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Thanks a lot.btw. I think it's time to take a long position on NatGas ;)
Dan Bachry Jan 03, 2020 9:10AM ET
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why long
Barani Krishnan Jan 03, 2020 9:10AM ET
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Jacek Pob?ocki?Wouldn't fault you for that. What comes down too, should (ideally) go up too :)
Barani Krishnan Jan 03, 2020 9:10AM ET
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Dan Bachry?At close to testing $2, natgas would seem a hold at least, pending weather outcomes
Nick Ferreira Jan 03, 2020 8:30AM ET
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hello.iran situation can?affect prices?
Barani Krishnan Jan 03, 2020 8:30AM ET
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Not natural gas for now.
Dice Anu Jan 03, 2020 7:55AM ET
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please can I know note about it
Barani Krishnan Jan 03, 2020 7:55AM ET
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Note?
Abdelouahed Madi Jan 03, 2020 7:51AM ET
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Barani Krishnan Jan 03, 2020 7:51AM ET
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Hello
Samuel Smith Jan 03, 2020 5:12AM ET
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All the best for the new year sir. Hope you publish more useful articles that are not a waste of read. I really want you to do well.
Barani Krishnan Jan 03, 2020 5:12AM ET
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Samuel Smith. It is also my wish to get readers who read and understand what I say, without making inane comments like this. Happy New Year to you too.
?? ?? Jan 03, 2020 3:00AM ET
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Thank you for your analysis & happy new year!if the ng future price is near 2$, then it's time to buy ugaz?
Barani Krishnan Jan 03, 2020 3:00AM ET
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I guess if you want to catch the rebound, yes.
 
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