• 17 hours Oil Prices Rise After API Reports Major Crude Draw
  • 18 hours Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 18 hours Gazprom Speaks Out Against OPEC Production Cut Extension
  • 18 hours Statoil Looks To Lighter Oil To Boost Profitability
  • 20 hours Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 21 hours Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 22 hours Whitefish Energy Suspends Work In Puerto Rico
  • 23 hours U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 1 day Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 4 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 5 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 5 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 6 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 6 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 7 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 7 days Lower Oil Prices Benefit European Refiners
  • 7 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 8 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 8 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 8 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production

Why Did Natural Gas Prices Just Rise 25% In Two Weeks?

Natural Gas Storage

Natural gas prices have run up phenomenally since the June contract expired on 26 May at $1.963/mmBtu. The natural gas prices touched an intraday high of $2.48/mmBtu on 6 June before closing flat for the day.

Since October 2015, prices have not been able to cross the strong resistance area of $2.5/mmBtu, as seen in the chart below. Do the fundamentals support a breakout and higher prices in the coming weeks, or will we see a move back into the range?

(Click to enlarge)

We have to consider supply and demand, along with inventory data to understand whether prices justify their sharp rise, within such a short span of time.

Storage

(Click to enlarge)

Though natural gas storage levels remain elevated, the supply glut is slowing compared to analysts’ expectations. As of 27 May, the Energy Information Administration reported natural gas inventories of 2,907 Billion cubic feet, an increase of 82 Bcf, which was below the consensus expectations of 86-Bcf, according to The Wall Street Journal.

In the previous week, inventories were 37 percent above five-year average levels compared to the same week in 2015; however, this week the surplus shrank to 35 percent above five-year average levels. This is an indication of a diminishing surplus.

"The 82 Bcf net injection into storage for last week was slightly less than the consensus view and below the 98 Bcf five-year average for the date, and so at least somewhat supportive for prices," said Tim Evans of Citi Futures Perspective.

"The build was also well below our model's 96 Bcf forecast, and so will translate into a more bullish baseline for the reports to follow," reports Natural Gas Intel.

Demand and Supply

In the long-term, the demand for natural gas is on the rise, as outlined in the EIA’s Annual Energy Outlook. However, in the short-term, the immediate demand for natural gas influences prices. Mild winter conditions were partly to blame for the record low prices in March of this year, along with the excess supply. Related: Rebound In Oil Prices Changes Drillers’ Mindset

However, the recent forecast of a hotter summer is expected to increase the air conditioning requirements leading to increased gas-powered electricity.

“With the weather once again changing to another warming trend, the market is looking for a bump up in consumption at a time when production may be starting to ease,” said Dominick Chirichella, an analyst at the Energy Management Institute, reports The Wall Street Journal.

The natural gas rig count fell by five rigs to 82, according to the Baker Hughes rig count report for the week ending 3 June. The rig count has dropped 63.1 percent year-over-year.

Experts believe that though consumption will increase, supply will not return as quickly as the EIA anticipates, which will lead to a reduction in storage levels and increased gas prices. Related: Norway Set To Ban Fossil Fuel Cars In 2025

The current prices are close to the forecast of the World Bank estimates of $2.5/mmBtu and slightly above the EIA forecast of $2.32/mmBtu for 2016.

Considering the sharp run-up in the last few days, natural gas prices are likely to consolidate their gains, waiting for the fundamentals to catch up. A material change to the existing demand and supply situation is needed for the prices to break out of the stiff resistance level of $2.5/mmBtu.

By Rakesh Upadhyay for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News