Energy Update | Sept. 29, 2020

Was Natural Gas’s Seasonal Pullback a Long-Term Buying Opportunity? In my September 14th Energy Update, I said the EIA’s

Was Natural Gas’s Seasonal Pullback a Long-Term Buying Opportunity?

In my September 14th Energy Update, I said the EIA’s forecasts of decreased production and increased exports would lead to structural imbalances and similar to 2016, the average price of Natural Gas would likely be higher over the next three years:

Natural Gas Graph

I said If the EIA’s forecast was correct, then pullbacks to the Buy Zone should be considered buying opportunities, and I believe this is where we are today. After my last report, Natural Gas’s nearby contract declined briefly to the Buy Zone, and then as expected moved sharply higher:

I believe we are in the early stages of a cyclical bull market; therefore, it is wise to take advantage of seasonal declines to secure fixed rates. The recent pullback took place during a shoulder period. Shoulder periods occur during the spring and fall when demand for Natural Gas and Electricity are low between the summer cooling and winter heating seasons:

Natural Gas Graph

It is common for cyclical lows to occur during shoulder periods and as expected Natural Gas rallied off its spring low, but the rally was cut short by the Covid-19 shutdowns resulting in decreased demand and a retest of its spring low on June 26th. But as you can see in the above chart, Natural Gas has sharply rallied off its fall low and as businesses reopen demand will increase; therefore, if you have not already secured your Natural Gas and Electricity rates, I recommend you do so prior to the winter heating season when rates are forecasted to be much higher than where they are today. 


Over many years of trading, I learned past performance does not guarantee future results, but based on the EIA’s long-term production and demand estimates and the empirical evidence contained in the above charts I believe the price of Natural Gas will be much higher this winter and the average price higher over the next three years. Therefore, if you have not already locked in your Natural Gas and Electricity rates, I recommend you take advantage of the recent pullback towards this year’s Buy Zone and secure fixed rates prior to the winter heating season. My concern is If you delay, you will likely pay more 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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