Natural Gas collapsing! Yet another deflationary sign
Updated
Natural gas in the US is collapsing. In part this has to do with LNG exports to the rest of the world being halted due to a fire to one of the export terminals. However in my honest opinion, there is more to it. It probably has to do more with the deflationary forces taking over, as high interest rates, money supply shrinking and inflation being too high, have destroyed demand to a very large extend. At the same time we are seeing progress in the energy space, with more projects and drilling taking place, as the ESG movement is taking a hit. The green movement needs to be sidetracked for a while, as we need cheap energy right now. Otherwise the war in Ukraine won't stop in Ukraine and we are gonna have famine in most of the world.
So where would I be looking to buy natural gas? Or until what level would I be willing to short it? Based on an average I created which includes several futures contracts, I think that closing shorts at around 5$ is a good idea, yet buying a lot of NatGas with significant upside, I'd say start buying between 3-4$.
So where would I be looking to buy natural gas? Or until what level would I be willing to short it? Based on an average I created which includes several futures contracts, I think that closing shorts at around 5$ is a good idea, yet buying a lot of NatGas with significant upside, I'd say start buying between 3-4$.
Note
Natural gas got the deflation call right. The collapse of NatGas was the first step toward deflation to come down. Warm weather in Europe, Russia facing tremendous financial pressures, and not being able to win the war are pushing down natural gas prices. There was a natural gas bubble as everyone scrambled for LNG. Still, the demand is coming down due to a combination of higher interest rates and the energy crisis killing the industrial market and heavily affecting consumers.
Now prices are collapsing, and they've dropped even further into the new year. We may be in a similar situation as in 2000, and prices might even go below 3-3.6$, which is the best and closest support. For now, we may get a bounce toward 5$, but ultimately might head towards 1-2$. Eventually prices will go much higher, but for the next year I doubt we will see new highs.
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