Natural gas prices outlook for July 2011

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The natural gas market started to shift direction in the U.S. as natural gas prices plummeted very sharply and very promptly during the second half of June along with other major commodities. Let’s examine the changes in the natural gas prices during June 2011 and provide an outlook for natural gas prices in July 2011:

Natural gas prices June 2011- analysis

Let’s first examine how did natural gas prices (Henry Hub) fluctuated during June: as presented below, the Henry Hub spot and future prices demonstrated at the first half of June an upward trend, despite that other energy commodities prices including crude oil prices already started to decline; the chart below shows the rise and fall of natural gas spot and future prices (short term July delivery); by the end of the month the Henry Hub spot price fell by 7.56% and the Henry Hub future price declined by 6.34%.


Natural gas spot price future (Henry Hub) June 2011 July 3

If we divide June in two parts: from 31/5 to 13/6 and from 13/6 to 30/6, we can see that during the first part of June the Henry Hub spot price rose by a moderate rate of 2.59% and reached a high level of $4.73/mmbtu, while the future price very moderately declined by 0.43% to $4.646/mmbtu; during the second part of June, the spot price sharply fell by 9.89%, and the future price (short term) declined by 5.94%. The table below summarizes these findings:

table percent change Natural gas spot price future (Henry Hub)  June 2011 July 3

The following table shows the average natural gas spot price, future price of Henry Hub (July delivery) and New York City Gate Spot price. During June, the average Henry Hub spot price rose by 5.2% compared with May’s average price. Future prices of Henry Hub (July delivery) also rose by 4.1%.

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

Thus, despite the fall of natural gas prices in the U.S. during the second half of June, their average prices still managed to rise in June compared with May’s.

Contango/Backwardation of natural gas prices (Henry Hub) June 2011

Let’s examine what does the market thinks the direction natural gas prices are headed in July:

During half of June (50% of the business days) natural gas prices were in contango (i.e. future price higher than spot price) as indicated below. During May this figure was slightly higher at 57%. This might serve as an indicator that the market estimates natural gas prices are highly priced and will continue to drop in the upcoming month.

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