Is Natural Gas’s Pullback This Week a Long-Term Buying Opportunity?

In the July 18th Energy Update, I said if warmer than normal weather continues into August or a major hurricane

In the July 18th Energy Update, I said if warmer than normal weather continues into August or a major hurricane impacts Natural Gas facilities in the Gulf of Mexico, Goldman Sachs Commodities Research’s statement “U.S. Natural Gas prices may need to trigger max substitution towards Appalachia coal, which we estimate would require a sustained gas price rally to around $12/MMBtu.” is not only possible their estimate could be surpassed with prices challenging the Katrina 2005 high.

And as you can see NOAA is now forecasting warm weather is expected to continue through the second week of August:

On June 10th when Freeport LNG closed, Natural Gas supplies were 323 Bcf below the 5-year average, it was thought decreasing LNG exports by about 20% would result in more supplies remaining in storage in the U.S. for the generation of electricity thereby easing the tight supplies of Natural Gas.

But the warm weather thru the second week of August will reduce supplies and Natural Gas supplies are now estimated to be approximately 400 Bcf below the 5-year average by the end of the second week of August.

Therefore, it is not surprising after Freeport LNG closed, Natural Gas declined into the end of June, but warmer than normal weather in July and early August resulted in Natural Gas rallying to a new high last week before pulling back slightly this week:

I believe the pullback early this week is a buying opportunity. As we enter this year’s storm season the risk factors discussed in the July 18th Energy Update continue to increase the risk of much higher prices this summer.

But to fully understand why I believe this week’s pullback is a buying opportunity you must look at Natural Gas prices from a long-term perspective. In my April 11th Energy Update I explain in detail why our present administration’s move towards green energy and away from fossil fuels is returning America to a period of high prices and volatility.

Fortunately, as I have explained in previous reports, Natural Gas prices continue to be lower in the forward markets from 2023 thru 2026; and I recommend securing longer-term agreements, which include lower prices from 2023 thru 2026. 

Also, as I said in recent reports, when appropriate our consultants will also help you secure blend and extend agreements to take advantage of an even sharper longer-term pullback if and when it finally comes. The bottom line is we are living in a period of great uncertainty, and we are here to help you navigate these perilous times.

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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