Is It Wise To Wait For Fall Low In Natural Gas?

September 11th, 2023 Is It Wise To Wait For Fall Low In Natural Gas? After reading today’s report you

September 11th, 2023

Is It Wise To Wait For Fall Low In Natural Gas?

After reading today’s report you will understand why we don’t believe it is wise to delay reserving agreements, hoping for lower prices in the

In our July 31st Energy Update we pointed out Natural Gas tends to be lower in the Spring and Fall between the Winter Heating and Summer Cooling seasons, and this pattern is especially accurate when Spring or Fall lows occur near historically low prices. For example, since 2000, Natural Gas declined to today’s unsustainably low prices 4 times; the final lows were always occurred either in the Spring or Fall, and the average price was always much higher for at least 3 years:

Natural Gas

As discussed in previous reports Natural Gas did not remain at prices as low as they are now because they are below the cost of production, and Natural Gas exploration and production companies are not profitable with prices this low; therefore, they are motivated to decrease production leading to higher prices so they can recoup lost revenue.

In our July 31st Energy Update, we pointed out this was precisely what was taking place with Baker Hughes reporting active Gas rigs were 18.4% below the same time last year, and the decline in active rigs accelerated the last 6 weeks and we are now 31.9% below where we were this time last year. Clearly the continued decline in Gas rigs will support higher Natural Gas prices long-term.

But how has Natural Gas responded to Exploration and Production Companies decreasing active rigs near-term?

After reaching its Spring Low Natural Gas formed a series of higher highs and higher lows, which is a classic pattern early in Bull Markets. When traders believe a major low has formed, they consider pullbacks an opportunity to add to their possessions thereby forming a series of higher lows. But Natural Gas is struggling to maintain its pattern of higher highs and lows, which raises the possibility prices may reach a secondary the Fall.

Natural Gas

As I said earlier, since 2000, when Natural Gas was as low as it is this year, the final low was always attained in either the Spring or Fall; therefore, it is possible as in the Fall of 2001 Natural Gas could form a secondary low to retest its Spring low this Fall,

But it is important to note Natural Gas prices in 2002 experienced an explosive rally and those who secured their hedges a few months prior to the 2001 Fall low still paid much less than where fixed rates were 2002 through 2005.

Natural Gas

Past performance does not guarantee future results, but given the long-term implications of plunging active Gas rigs and the fact that since 2000, when Natural Gas declined to today’s historically low-price level the average price was always much higher for at least 36-months, you learn from the past and take the appropriate action to protect yourself

Therefore, we recommend anyone with agreements expiring within the next 18 months, don’t delay hoping for lower prices in the Fall and reserve power to be available when your present agreements expire. Our concern is the longer you delay now, the more you may pay later.

Not every client’s risk tolerance and hedging strategy are 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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