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New lows for natural gas prices?
U.S. Natural Gas Futures - Gen 2024 (NGF4) recovered from a 6-month low at $2.2 last week and now hovers around $2.5/MMBtu.
This is due to seasonal demand and increased gas flows to LNG export facilities.
Robust and steady exports are expected to continue, with LNG terminals consuming about 15 billion cubic feet per day.
However, the market is also affected by concerns about possible disruptions to maritime trade in the Red Sea due to attacks by the Yemeni Houthi militant group.
In this regard, global freight companies are seeking alternatives to passage through the Red Sea, including the Cape of Good Hope.
BP has even suspended all of its Red Sea shipments to avoid future problems.
Readers who have followed my articles on natural gas this year know that I have been bearish since October because of high production and warm weather with consistently above-average temperatures.
Unlike last year, December 2023 ranked as one of the hottest months ever.
Unless there is a sudden change in the weather forecast, the situation may only get worse.
NG natural gas production has been exceptional this year, but this has led to a drastic decrease in prices that will probably not reach $3 until the second quarter of 2024.
After a record warm December, we may finally have cooler winter weather in January, giving hope for a recovery in natural gas prices.
Currently, the ECMWF-EPS long-term forecast indicates a possible cold spell in mid-January, and we hope this will come true for the sake of market bulls.
However, we know that weather forecasts are not always accurate so it remains to be seen what will actually happen.
According to the futures curve analysis, no good news is coming for gas.
Currently, the curve is in contango, which means that investors are willing to pay more to buy gas in the future than the current price.
This is mainly due to the need to protect against a possible rise in gas prices.
However, near the expiration of the futures contract, a decline in the premium offered on the current price is often observed, and the futures price gradually approaches the spot price.
Under Contango conditions, futures prices of a commodity tend to be higher than current prices.
Therefore, the futures price curve will steepen as we approach expiration, as the expected spot price becomes closer and closer to the futures price.
Remember, if you want to trade in the natural gas market, you also have the option of investing in the shares of a related company such as Antero Resources Corp (AR).
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This independent company is involved in the development, production, and exploration of energy resources in the Appalachian Basin, including natural gas, natural gas liquids (NGLs), and oil.
In summary, there could be a technical upswing for gas, especially if the weather turns surprisingly colder than expected.
However, in the medium term I remain rather pessimistic and have already predicted long-term lows in my previous articles in October. I predict that natural gas prices will fall further in the next quarter, reaching new lows around $2.
