Natural gas prices outlook for April 2011

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.


Natural gas spot price future (Henry Hub) March 2011

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%.


Change in natural gas prices Henry Hub, and New York City Gate spot October 2010- March 2011

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.


Contango  Backwardation Natural gas (Henry Hub) Future-Spot March 2011

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.


U.S. Natural Gas Total Consumption (MMcf) 2008-2011 march 31

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.


Natural gas spot price (Henry Hub Natural Gas storage March 31

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

Short Term

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.

Long term

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.


Ratio of WTI spot price and natural gas Henry Hub spot 2010-2011

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