Let’s examine the current natural gas market in the US and the effect the recent news might have on natural gas spot price (Henry Hub) and future price as of March 14th:
Gas prices March 2011
According to recent weather forecasts, there will be rain and thunder storms in the Southern and Northwest of the US. There might also be some light rain in the Northeast.
This upcoming storm might further raise the consumption of natural gas in those regions, despite the drop in consumption during last week as reported by the recent EIA report on natural gas market in the US.
The US consumption of natural gas is still high compare to previous years and the natural gas stocks continue to dwindle, and are slightly lower than in 2010, yet there is little evidence (so far) that natural gas price will start to rise…
Future and spot prices
The premium of the future prices of Henry Hub over the natural gas spot price rose as of Friday, March 11th to reach 0.1$/MMbtu (Contango). The difference fluctuated all week, as natural gas spot and future prices rose and fell at different days. This might be because of the short term rain storm that caused a short term rise in natural gas spot prices over futures (Henry Hub). At the end of last week, spot price had an upward trend while future prices had a downward trend and yet they finished the week with future prices higher than spot prices.
During the month of March, up to March 11th, spot and future prices of Henry Hub fell by 3.6%, each. This suggests, as expected, that there is a downward trend when examining natural gas price changes during March.
EIA energy outlook
The EIA published its updated report on energy outlook for 2011.
According to the report, natural gas inventories will remain high; the estimated average natural gas spot price (Henry Hub) will be $4.10 MMBtu during 2011, which is $0.29 MMBtu lower than the 2010; finally the EIA consider that the natural gas market will begin to tighten only in 2012, causing the Henry Hub spot price to increase.
Current Natural gas price
European markets currently show rapid rises in natural gas future price:
The Nymex Henry Hub natural gas price, short term futures (April 2011 delivery) is traded at 4.03 USD / MMbtu, a 0.14USD rise or 3.52%, as of 14.41*.
Natural gas spot price Outlook:
As the cold weather will continue to dwell in many parts of the US, it will probably pressure natural gas prices to rise, for a few days over and close the gap between the spot and future prices (April delivery) as it happened during last week. This affect, however, won’t be long lasting as the winter is slowly departing the US, and with it the prices of natural gas will likely to continue to decline.
The ongoing surge in oil prices are still over 100$/b due to the Middle East and North Africa turmoil such as the Libyan riots (among other reasons), causing consumers to consider alternatives energy sources such as natural gas for heating purposes. Therefore the recent hike in oil prices might play a role in reheating the natural gas market to some degree (figuratively speaking of course).
Since natural gas, however, isn’t a perfect substitute (obviously not for fueling cars), this scenario is something to consider but not to rely on.
I speculate that natural gas prices might rise a bit due to short term pressure in maintaining demand; however, as the week will progress we will probably see natural gas spot and future prices continue to slow descend.
Here is a reminder of the top news that will be published today that might influence the markets (all times GMT):
12.30PM – Capacity Utilization Rate reported by the Statistics of Canada
23.30PM – Minutes of the policy meeting of the Reserve bank of Australia.
18.15PM – Decision on Federal Reverse’s Interest Rate
For further reading (on this site):
- Natural gas prices outlook for March 2011
- Weekly outlook for 14-18 March
- Natural gas prices zigzagged all week – Weekly recap 7-11 March
- Natural gas market continues to cool down | EIA review, Mar 11