Natural Gas Moves Above Consolidation Pattern and May Be Poised to Move Higher In my Jan 4th Energy Update, I said as we entered 2022, we faced the prospect of increased prices and

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In my Jan 4th Energy Update, I said as we entered 2022, we faced the prospect of increased prices and volatility due to rising competition for our Natural Gas from buyers overseas and increased inflation at home.

In the short-term, milder than normal weather through the end of December led to a decline in prices, but the sharp decline was completed by Dec 6th. The decline was triggered by the forecast of mild weather for the first half of December, and although milder than normal weather remained until the end of the month prices didn’t continue its decline, instead consolidating near the lower Bollinger Band:

In my last report, I explained when a market doesn’t decline when the news justifies a decline, it is saying short-term the path of least resistance is likely to the upside, and as you can see, Natural Gas has moved above the consolidation pattern:

Where prices go short-term depend on the weather thru the end of March. If it is colder than normal Natural Gas is poised to move sharply higher, and the long-term risk has increased due to our present administration’s restrictive energy policies, aggressive fiscal spending, and quantitative easing by the Fed, and those factors collectively have increased risk of inflation in the U.S.

Also, as we entered this year’s winter heating season, Europe’s green energy policies left them with supplies near a 10-year low, which increased the risk of higher prices not only this winter, but long-term since the polices leading to today’s high prices are not abating, they are becoming more entrenched abroad.  

In my Dec 6th Energy Update, I said early in the 21st century, we experienced higher Natural Gas prices and volatility prior to fracking giving us sufficient supplies to meet our energy needs, but over the last 10 years we were blessed with a period of lower prices and volatility with fracking giving us sufficient supplies to meet our energy needs.

But the long-term risk factors discussed earlier increase the potential we will be returning to the prior period of higher prices & volatility before fracking. Although it is possible rates could go lower short-term, I am confident in 2022 thru 2025 rates will often be significantly higher than today.  

No one knows for sure where Natural Gas and Electricity prices will be over the next 6-months, but four years from now, I believe you will realize there was only one cost of doing business you could have stopped increasing, your cost of energy for Natural Gas and Electricity.

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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