Natural Gas to Reach $4 During the Summer?

Natural gas prices behave extremely seasonally.

In the past, due to the increasing demand for natural gas to power air conditioners during the summer season, we have noticed that the price of gas tended to increase significantly as the season approaches

Summer this year could be different than usual, with forecasts showing we are set to experience a hotter-than-expected summer spell across much of the continent.

NOAA (National Oceanic and Atmospheric Agency) has announced the arrival of El Niño for June 8, which means higher than usual temperatures in both summer and winter.

Another boon for natural gas comes from Europe.

Due to concern about its environmental impact, the Dutch government plans to permanently close the Groningen gas field, the largest in Europe. This will have a significant impact on gas supply in Europe.

The Dutch government's unexpected decision triggered a wave of hikes in European gas prices, with TTF energy futures surging more than 50%.

In the short run, prices can continue to fall.

If you've been following my posts, you know that on June 26, I entered into a natural gas short transaction.

After having finished their maintenance work, several manufacturers are back in business and there is the disadvantage of no longer having to face the stifling heat like in the last period in the USA.

On the other side of the world, encouraging news is coming from China with demand remaining robust.

The overproduction of natural gas does not lead me to consider a purchase at the moment. It will take more than three months in extreme weather conditions for storage levels to normalize. While summer demand will certainly be high, winter is still the time of year when US gas demand peaks.

I am carefully following the weather forecast, in order to close the short position in profit. If natural gas prices fall near their yearly lows, I will consider buying if I see forecasts of extreme temperatures to capitalize on a near-term price rally.

Given the conditions of the futures curve, it is not possible to take long-term buying action, as the curve is in contango. This situation arises when the curve slopes upwards and gas prices for future deliveries are higher than the current price. This phenomenon reflects the cost of storing the gas. So if you want to store gas for delivery in August, the futures cost must be higher than the spot price to reflect that expense.


Author's note:

The information and content provided on this site should not be considered as an invitation to invest in the financial markets. The Content is a personal opinion of Mr. Antonio Ferlito.