It's Still Not the Time to Buy Natural Gas - But It Will Be Soon
Antonio Ferlito | Apr 19, 2023 12:13
Natural gas futures surged by nearly 8% on Monday, hitting a three-week high. This rise in prices is due to forecasts of colder temperatures and higher heating demand in the coming weeks. As a result, the value of futures has increased. Additionally, natural gas exports from the United States are also contributing to the rise in prices. In fact, export levels have remained elevated for the second consecutive month in April.
It is worth noting that demand for natural gas usually peaks during the summer months for electricity generation and during the winter months for heating homes and buildings in the North East and Midwest regions. However, there have been no concerns about natural gas demands in 2023 as of yet.
Natural gas has various uses such as industrial use, home heating, and electricity production. While coal is a significant alternative source for electricity generation, its high prices, at $3.5 per MBTU compared to $2.5 for natural gas, create strong economic and capacity pressures for utilities to shift toward natural gas.
The production of natural gas remains high, but adverse weather conditions can cause problems, as seen this past winter season. The price of gas has fallen due to warmer temperatures, leading to a considerable increase in stocks. While the short-term trend appears to be bullish, supported by good volumes, the movement was not caused by purchases, but by short-coverings. Speculators buy back to close out gaining positions when prices drop significantly, thus creating a temporary bounce.
While the demand for natural gas seems promising, concerns regarding production and the unpredictable weather conditions may lead to fluctuations in prices.
- My pricing model points to natural gas prices rising to $5 over the next few quarters.
- I expect drought and extreme temperatures to come this summer, so my plan is supported by that scenario.
- The opportunity is tempting and I can't afford to pass it up. However, a further drop in prices is likely to come in the next few weeks, providing the correct buying opportunity.
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Author's note: The contents and information presented on this site should not be considered as a solicitation to invest in the financial markets.
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