It is not yet the right time to buy Natural gasIt is not yet the right time to buy Natural gas.
U.S. natural gas futures prices hit a three-week high on Monday, climbing nearly 8% after forecasts of colder temperatures and higher heating demand in the next two weeks.
The predicted decrease in temperature has led to an increase in the value of futures.
Prices have risen as the amount of gas being exported abroad as liquefied natural gas from the United States is heading for a new monthly high.
Export levels remained elevated for the second consecutive month in April.
Forecasters are foreseeing lower-than-usual temperatures in most of the 48 continental US states between April 17 and 25.
Refinitiv estimates that this trend pushes gas demand across the United States, including exports, to 94.8 bcf/d in the coming week, up from 94.1 bcf/d this week.
Good news comes from natural gas demands, however, it has not been a problem in the year 2023.
Natural gas experiences a higher demand during the summer (July and August) for electricity generation, while in the winter (December to February/March) there is a sharp increase in demand for heating homes and buildings in the North East and Midwest.
Natural gas has multiple uses, including industrial use, for home heating and to produce electricity.
A major alternative source to NG-generated electricity is coal, but with still high prices - $3.5 per MBTU versus $2.5 for NG - there are strong economic and capacity pressures for utilities to scale up the production of energy using natural gas.
With many coal-fired plants expected to be phased out over the next year, these pressures are set to increase.
I am confident about the demand for natural gas, but pessimistic about production.
Production remains high and adverse weather can cause problems as we have witnessed this winter season.
The price of gas has fallen due to warmer temperatures, which have led to a significant increase in stocks.
Looking at the technical picture, the short-term trend appears to be bullish supported by good volumes.
However, the movement was not caused by purchases, but by short-coverings.
When prices drop significantly, speculators will buy back to close out gaining positions, thus creating a temporary bounce.
My pricing model points to natural gas prices rising to HKEX:5 over the next few quarters.
So I will monitor inventory weekly to consider purchasing the gas.
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.
Author's note:
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