Energy Update | May 5th, 2020

Natural Gas May Have Completed Seasonal Low Below $2.00 per MMBtu In my April 20th Energy Update, I said

Natural Gas May Have Completed Seasonal Low Below $2.00 per MMBtu

In my April 20th Energy Update, I said the decline in Oil and Gas rigs was accelerating, which greatly increased the probability Natural Gas will be significantly higher by the end of the year.

Since my last report, the collapse of active Oil rigs continued to accelerate declining 47.9% from 624 to 325 in the last 5-weeks, and 59.7% year-over-year. To make matters worse the decline of Natural Gas rigs also continued to decline with a loss of 4 more rigs and we now have only 81 active Natural Gas rigs down 55.7% year-over-year.

Today’s report explains why it is highly probable Natural Gas completed a major long-term bottom during this year’s spring shoulder period and prices will likely be significantly higher on average for at least three years.

Shoulder periods occur in the spring and fall when demand for Natural Gas and Electricity are low between the winter heating season and summer cooling seasons. It is common for important cyclical lows to occur during shoulder periods and I believe this year’s spring low is no exception and is offering us one of the best buying opportunities I have seen in over 40-years of trading commodities.

The chart below shows that this morning, Natural Gas broke out of a consolidation pattern in place since near the end of February:

Classically, consolidation patterns form when traders are positioning themselves for long-term moves, and the more time it takes for the pattern to form the higher the subsequent move tends to be. This is especially true when the consolidation pattern is formed at a historically very low-price level.

The chart below shows what took place over the last 20 years when prices declined below $2.00 per MMBtu:

Over many years of trading, I learned past performance does not guarantee future results, but based on the empirical evidence contained in the above chart I believe the average price of Natural Gas will be much higher for at least three years. Therefore, if you have not already locked in today’s low rates, I recommend you do so as soon as possible. My concern is the longer you delay now, the more you may pay later.

Not every client’s risk tolerance and hedging strategy is the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Energy Professionals
Senior Commodity Analyst                                                                                                                                                                                                                                                                                     

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