Natural Gas Changed Direction Again – Will It remain Range Bound?

The price of natural gas changed course and tumbled down in the past week. The price of the Henry Hub tumbled down by 5.4% to reach $3.85. United States Natural Gas (UNG) dropped by 6.7% while U.S natural gas producers including Anadarko Petroleum (APC) declined by 2.5%. Despite the recent fall in natural gas, its price remained around $3.8-$4 for the past several weeks. But the last two injections to storage suggest the buildup rate may not be enough to bring underground storage to its normal levels by the end of October. Let’s examine the recent developments in the natural gas market.

The Contango remains high

Despite the decline in the prices of natural gas in the first week of September, the Contango in the futures markets remained high as indicated in the chart below.

This chart shows the gap between the one month ahead future rate and the rates of two, three and four months ahead. The rise in the difference between the short term price and the other future contracts suggests the market expects the spot price of natural gas will pick up in the near future.

The rest of this analysis is at Seeking Alpha

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