Natural gas price outlook – 26 January

Here is short summary of natural gas related news and analysis for today, January 26th:

Natural gas spot price (Henry Hub) declined yesterday by nearly 6%, which is the sharpest fall for this energy commodity in a single day since 11/11/2010. That being said natural gas spot price only fell by 2% during January 2011. The short term Henry Hub future price fell yesterday by 2.4%, and by 3.9% during the month of January.

The Contango as of yesterday (the gap between future and spot) of Henry Hub was 2 cent/mmbtu, however this gap fluctuates on a daily basis and could reverse by the end of the day.

It seems that the main news that could affect natural gas spot price will be the upcoming cold front into the Northeast which could bring temperatures down, and consequently raise the demand for natural gas.

According to the recent forecasts, there is a good chance of snowfall later on this week in the Northeast including New York. Thus there is a good chance that the recent decline in natural gas prices will reverse direction and rise today or tomorrow.

Consider that in recent years, there is a strong correlation (over +0.5) between natural gas spot price (Henry Hub)    and consumption of natural gas in the US. Despite this correlation no being reliable it’s still an adequate indicator to use (I will post in this matter in the near future).

Different reports and analysts point natural gas spot price is heading in different directions: According to Paul A. Ebeling, Jnr., natural gas is undervalued, while Businessweek reports that UK natural gas is down as demand for heating fuel declines.

Here is a reminder of the top news that will be published today and could affect oil and gas prices (all times GMT):

13.30PM: the Department of Labor will issue its weekly report on US unemployment claims;

15.30PM: The EIA will issue its weekly report on crude oil inventories

23.30PM: the Melbourne Institute will publish its MI leading index, which shows the changes in the economic activities in Australia and the expectations for the near future economic growth;

23.50PM: Report of Japanese Trade balance for the month of December.

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