Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Bubble Drivers, Crypto Exit Strategy During Musk Presidency - 27th Dec 24
Gold Stocks’ Remain Exceptionally Weak Even as Stocks Rise - 27th Dec 24
Gold’s Remarkable Year - 27th Dec 24
Stock Market Rip the Face Off the Bears Rally! - 22nd Dec 24
STOP LOSSES - 22nd Dec 24
Fed Tests Gold Price Upleg - 22nd Dec 24
Stock Market Sentiment Speaks: Why Do We Rely On News - 22nd Dec 24
Never Buy an IPO - 22nd Dec 24
THEY DON'T RING THE BELL AT THE CRPTO MARKET TOP! - 20th Dec 24
CEREBUS IPO NVIDIA KILLER? - 18th Dec 24
Nvidia Stock 5X to 30X - 18th Dec 24
LRCX Stock Split - 18th Dec 24
Stock Market Expected Trend Forecast - 18th Dec 24
Silver’s Evolving Market: Bright Prospects and Lingering Challenges - 18th Dec 24
Extreme Levels of Work-for-Gold Ratio - 18th Dec 24
Tesla $460, Bitcoin $107k, S&P 6080 - The Pump Continues! - 16th Dec 24
Stock Market Risk to the Upside! S&P 7000 Forecast 2025 - 15th Dec 24
Stock Market 2025 Mid Decade Year - 15th Dec 24
Sheffield Christmas Market 2024 Is a Building Site - 15th Dec 24
Got Copper or Gold Miners? Watch Out - 15th Dec 24
Republican vs Democrat Presidents and the Stock Market - 13th Dec 24
Stock Market Up 8 Out of First 9 months - 13th Dec 24
What Does a Strong Sept Mean for the Stock Market? - 13th Dec 24
Is Trump the Most Pro-Stock Market President Ever? - 13th Dec 24
Interest Rates, Unemployment and the SPX - 13th Dec 24
Fed Balance Sheet Continues To Decline - 13th Dec 24
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Optimistic Natural Gas Forecasts Underreport Risks

Commodities / Natural Gas Oct 08, 2015 - 10:20 AM GMT

By: AnyOption

Commodities Gordon Meagher writes: Natural gas prices have not been immune from the broader deflationary forces impacting commodities across the globe.  Production gluts and oversupply are testament to the industry’s problems as company’s produce at breakneck speed to stave off bankruptcy after borrowing substantial funds to fund exploration and production projects across the lower 48 US states.  Even though an LNG export terminal is expected to come online this quarter, improving the export market capacity, it is unlikely to tackle the problem at its root.  Even though the supply-side of the equation can remain very fluid, stimulating demand has proven difficult.  Even though certain factors such as the falling rig count are contributing to optimism of a potential rebound, longer-term factors dictate further weakness in prices.


Production Declining

A quick glance at global trade volumes is showing the world economy continues to see the pace of expansion falter, confirmed by the latest IMF downgrade of the global growth outlook.  While US natural gas does not have an export ban akin to crude oil, exports have faltered over the past two years.  Production steadily climbed over time despite a dip in 2008 and another 2012.  At this point, the latest US Energy Information Administration data shows that production has declined from a peak reached in April and while marginally lower, production has mainly flattened.  From the point of view of demand, growth is expected to be weak in 2016, growing to just 76.4 billion cubic feet per day compared to 76.2 billion in 2015.  While household demand is forecast to slide this year as warmer winter conditions are anticipated, low prices are creating strong incentives to allocate an increased amount of gas towards electricity production

The latest predictions show that gas prices are not expected to rise back above $3 per MMBtu until after January and while increased seasonal demand during the winter months might give gas prices some tailwinds, these factors are likely to be short-lived.  Drilling efficiencies continue to rise meaning that any uptick in prices is likely to lead to production growth, a situation which will continue to play downward pressure on prices in the near-to-medium term.  Liquefied natural gas exports are expected to help balance-out the pricing dynamic in comparison to the rest of the globe.  Prices are nevertheless estimated to remain subdued, with 2016 forecast to average approximately $3.05 per MMBtu.  However, based on the current amount of production and no sign of further slowing especially amid increased efficiencies in drilling and production, natural gas prices are unlikely to rebound to those optimistic levels.

Rig Count Still Falling

The latest data from oil services giant Baker Hughes shows that the pain is not yet over for natural gas producers as the recent glut continues to impair companies with high breakeven costs.  Natural gas drill rigs continue to be taken offline as evidenced by the two dismantled in the previous week, with the current drill rig count for gas standing at 195, well below the 330 rigs that were operational exactly a year ago.  In general, energy drill rigs have fallen by over 50% versus the prior year in a sign of more difficult times to come for exploration and production companies.  With energy prices forecast to remain subdued for years to come especially on the back of weak demand from Asia and limited exports, more companies, especially in the tight gas plays are expected to fold as a result.  Financing from Wall Street is increasingly difficult to obtain due to a quarterly revaluation of reserves and the fact that increasing credit to firms creating limited cash flow is highly speculative.

The Technical Take

Natural gas prices continue to consolidating within a descending triangle pattern, formed by the emergence of a prevailing downtrend line and horizontal support.  The formation has a strongly bearish bias with any move and close below the key support level at $2.440 considered a triangle-based breakout to the downside.  Breakout trades are typically accompanied by renewed and expanded momentum and the move is further confirmed by an uptick in trading volumes.  With this in mind, Put positions should be initiated on any break of the support level to capitalize on the potential for further downside in Natural gas prices, targeting lows last seen in 2012 at $2.126.  However, should the downtrend line be broken to the upside before natural gas prices break lower, it signals a breakdown in the unfolding pattern and could also lead to a potential upside reversal and technical bounce.  A break of the prevailing downtrend line is cause for initiation of Call positions targeting $2.832.

Conclusion

Although further downside in gas prices might be limited by the exit of more marginal producers, oversupply conditions are forecast to remain in natural gas.  Prices are expected to remain subdued for a longer period of time and despite the fact that government estimates put the average prices above $3 per MMBtu, reality might dictate prices below that level for an extended run.  A dropping rig count and increased LNG exports will be positive and supportive of a rising price trend over the coming years, but these developments remain at a distance. However, with winter demand for gas expected to fall and pressure commodity prices unlikely to abate. However, should the trend-line be broken, it could mean a temporary upside respite for prices that involves a technical rebound towards $2.832.  However, despite the technical factors, risks remain biased to the downside.

Anyoption™ is the world's leading binary options trading platform. Founded in 2008, anyoption was the first financial trading platform that made it possible for anyone to invest and profit from the global stock market through trading binary options.

Our goal here at Market Oracle is to provide readers with valued insights and opinions on market events and the stories that surround them.

Website anyoption.com

© 2015 Copyright  Anyoption - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in