Natural Gas: 2 Reasons To Buy On Dips

[Tom Kirkman + 8,860]

Disclaimer, I do *not* provide trading advice about oil & gas.  Despite the numerous private messages I have received over the years from noobs on this forum and also on LinkedIn.  This is for info only.

 

Natural Gas: 2 Reasons To Buy On Dips

• The Baker Hughes data is not bearish
• The monthly chart could limit the downside potential for the price of natural gas
• Electricity demand during a hot summer will increase gas usage at a time when production is falling

Energy has been a volatile sector in 2020. The price of NYMEX crude oil futures fell into negative territory on April 20 when the May contract expired, and longs had nowhere to store the petroleum. In March, the price of nearby NYMEX natural gas futures fell to the lowest level of this century when it reached $1.519 per MMBtu. The last time natural gas traded at a lower price was in 1995. The weakness in energy prices was a function of massive supplies and evaporating demand during the global pandemic.

The fundamental equations for crude oil and natural gas have been adjusting to compensate for the change in the balance between supply and demand. There is an old saying in commodities markets that the cure for low prices is low prices. When a commodity falls to a level where the cost of production is above the market price, output declines. Since natural gas futures began trading on NYMEX in 1990, the price range has been from $1.02 to $15.65 per MMBtu. At below $2, the price is a lot closer to the lows than the highs over the past three decades. Despite technological advances and the discovery of reserves that have lowered the production cost, the price of the energy commodity is at a level where producers are not making significant profits.

Moreover, debt levels in an environment where credit is tightening for companies with weak balance sheets threaten future output viability. Natural gas is in an oversold condition on the long-term chart, and production is falling. The United States Natural Gas Fund (UNG) follows the price of nearby NYMEX futures higher and lower.

The Baker Hughes data is not bearish

The June futures contract in natural gas rolled to July last week. When the continuous contract on NYMEX fell to a twenty-five-year low in mid-March, the low in July futures was at $1.802 per MMBtu.  ...

 

... The cure for low prices in a commodity is the low price. When demand increases and production falls, significant price bottoms often occur. Buying natural gas during periods of price weakness is likely to be the optimal approach to the energy commodity over the coming weeks. The price action on the final trading session of May could turn out to be a harbinger of future price action. The move below $1.80 proved unsustainable and the price settled at $1.849 per MMBtu. The first level of technical resistance on the July contract stands at $2.027. The May 5 high at $2.364 is the target on the upside.

 

[Blackbag99 + 20]

Personally I am going to sell seasonal peak.

Storage will be full 6 months later