Following the rises in natural gas prices in the past couple of weeks, will this uprise continue towards this week?
Let’s examine the natural gas market for March 28th:
US rigs went up last week
According to Baker Hughes, there was a rise last week in US rigs as the number of rigs drilling for natural gas reached 880, an increase of five from the previous week. This might be another figure that shows the increase in natural gas production that was reported in the recent EIA report (see here for recent EIA report).
Japan’s energy sources
The turmoil in Japan due to the tsunami attack and especially around the nuclear reactor leaks isn’t over; however Japan will need to look forward into finding quick energy solutions.
Tokyo Gas Co. already diverted a volume of liquefied natural gas (LNG) to Tokyo electric power Co to compensate for the energy loss from two nuclear reactors that were damaged in recent earthquake.
If Japan will look continue to replace the energy loss from nuclear reactors with liquefied natural gas, this might shift the natural gas market and might contribute to the increase in natural gas prices.
Natural gas prices March 2011 – update
According the updated US weather forecasts there will be showers and thunderstorms in the South and snowfalls in the Northeast and Midwest with the Northeast’s temperatures may reach 5 to 15 degrees below the average temperatures over the entire region.
This news might further pressure natural gas spot price to increase as the day will progress.
Future and spot prices
The contango (the premium of future prices of Henry Hub over the natural gas spot price) reached on Friday, March 25th 0.27$/MMbtu. As we are exiting the winter and nearing the time of maturity of future April delivery, the contango should drop and switch to backwardation.
During the month of March 2011, up to March 25th, spot and future prices of Henry Hub rose by 5.1% and 13.6%, respectively; however, their average prices were lower than their average prices in February by 0.3% for future prices and 4.1% for the Henry Hub spot price.
Current Natural gas price
European market currently shows rises in natural gas future price:
The Nymex Henry Hub natural gas price, short term futures (April 2011 delivery) is traded at 4.42 USD / MMbtu, a 0.02 USD rise or 0.41%, as of 11.16*.
Natural gas spot price Outlook:
If the recent rises during last week of the Henry Hub natural gas spot price and future price are related to the recent cold weather then I speculate the prices may drop during the week as we are existing March and the weather is likely to get warmer. This scenario also coincides with the rising US production which eases the pressures for natural gas prices to increase.
If, however, the recent rises are more related to the speculation around Japan’s rising need in natural gas, then natural gas prices might continue to incline, but at a more moderate pace than they did in the past week.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
16.00 – ECB president’s speech
9.30 – Great Britain Balance of Payments
For further reading (on this site):
- Natural gas market bounces back | EIA review, Mar 25
- Natural gas prices outlook for March 2011
- Weekly outlook for 21-25 March
- Natural gas prices shifted direction to a rise – Weekly recap 21-25 March