Natural gas spot price forecast – March 8

Let’s examine the expectations of natural gas spot price (Henry Hub) direction in the next several days:

As we have seen last week there wasn’t a clear trend in natural gas prices, as Henry Hub spot price fell by over 5%, and the Henry Hub future prices declined by a very similar rate.

The premium of the future prices of Henry Hub has risen over the natural gas spot price, as it is expected to do so in the beginning of the month.

As of Friday, March 4^th the spread was 0.11$/MMbtu (Contango).

Currently the situation in the US is that the consumption of natural gas is still high, the natural gas stocks continue to dwindle, and there is still a cold weather in some parts in the US, even though there aren’t apparent cold fronts expected in the Northeast – one of the major consumers of natural gas (see forecast below). Let’s see how all this add up to the effect on natural gas price.

Current Natural gas price

Europe markets currently show moderate falls in natural gas future prices:

The Nymex Henry Hub natural gas price, short term futures (April 2011 delivery) is traded at 3.88 USD / MMbtu, a 0.05 USD fallor a 1.22%, as of 13.44 PM*.

(* GMT)

Natural gas spot price Outlook:

According the recent forecasts, there are expected some windy storms over the south central plain in the US on Tuesday, however it is expcted to be sunny in the Northeast. This might increase the demand for natural gas in the regions that will suffer from the cold weather, however in total as the winter continued to slowly depart the US, the demand for natural gas will probably continue to fall for heating purposes.

On the other hand, as the oil market heats up and prices keep on rising due to the turmoil in the Middle East; this situation will probably have an adverse effect on natural gas prices as well, seeing that natural gas is a partly substitute energy commodity to oil. If the crude oil price hike will continue, it might also cause some spillover effect on natural gas spot price to increase as the demand of natural gas will to incline in order to substitute the oil demand.

In Europe, at least, since Libya is also a major exporter of natural gas (Libya has 54.7 trillion cubic feet as of January 2011 and exported to Europe 349 Bcf of natural gas during 2009), this means that there are some supply disruptions of natural gas, which could affect the natural gas price in Europe.

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.

If I would to speculate, I still think that in the short run the downward trend in natural gas prices will continue even if the fall will be less steep than it did last month.

Here is a reminder of the top news that will be published today that might influence the markets (all times GMT):

Today:

7.45AM – French trade balance

13.15AM – Housing starts report in Canada

Tomorrow:

Tentative – China’s foreign trade balance

12.30PM – Australian Bureau of Stat. will publish the unemployment rate

15.30PM – EIA report about Crude oil inventories

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