During March, natural gas prices bounced back from their decline during February. It’s probably related to the winter prolonging more then expected during March, but there were also some speculations around natural gas that might have driven natural gas prices up.
Let’s examine March and speculate how natural gas prices will react in April 2011:
Natural gas prices March 2011
As seen in the chart below, it shows that natural gas spot and future prices had an upward trend during most of the month of March.
Despite the upward trend seen above, the table below shows that the average natural gas spot price moderately declined in March by 2.1% compared to February 2011. Future prices of Henry Hub (April delivery), on the other hand, rose by 1.3%.
Contango of natural gas prices (Henry Hub) March 2011
During most of the month, natural gas prices were in Contango as in the chart below. This is another indicator of natural gas future prices outperformed spot prices.
Demand for Natural gas
As expected, the natural gas market is at its end of the high season and the consumption of natural gas in April will likely to decrease as the demand will drop in the US.
The natural gas storage is also low and coincides with the low level of natural gas prices compared to the prices levels during January 2011.
At the end of the month, the underground natural gas storage (Billion Cubic Feet) reached a total of 1,624 billion cubic feet.
Natural gas prices forecast April 2011
The recent revive in the natural gas market, could be related to the slower than excepted departure of winter; however, if this was the sole reason, then we should have seen natural gas spot prices leveling with future prices and perhaps even superseding them at the end of the month. As seen above, this wasn’t the case.
Therefore, the rally might also have something to do with the tsunami attack on Japan: since Japan will need to increase its imports of energy commodities, this might also incline its demand for natural gas and thus pressure natural gas prices to increase.
The turmoil in the Middle East might have also affected natural gas prices, even though much more moderately compared to its effect on crude oil prices.
These events will likely to continue affecting natural gas prices but moderately, and given the fact the US is entering spring time, this will likely to reduce the pressure of natural gas prices from further rising.
The recent speech given by Obama, in which he said the US government will work towards decreasing the oil imports and switching to natural gas, might have persuaded some investors to invest in natural gas, however this change, of course, won’t take place soon so its actual effect on natural gas market will appear in the next several years.
The crude oil to natural gas ratio is (see graph below) is at a very high level (the highest level in over two years), mainly due to the turmoil in the Middle East; this high ratio might persuade other countries, such as China and Japan, to shift towards natural gas and raise their demand. But this step will also take time to implement.
For further reading (in this site):
- Natural gas market rallied last week – EIA report April 1
- Crude oil prices Monthly outlook –April 2011
- Natural gas prices in 2010 and projection to 2011