In November, natural gas prices have spiked higher and made a high at $2.90 over the weather forecast.
It is that time of the year again as we are predictably moving into another very cold winter when natural gas prices take off. Natural gas usage jumps 40-60 percent in winter months as compared to summer months. This year in November, we have seen the highest gas demand and prices since March.
The price of natural gas is highly dependent on the weather conditions of the USA. The colder the winter, the higher the prices of natural gas. For November, the winter condition is likely to be milder around the US. The average temperature forecast is about to be 1° to 5° in the US.
Globally, the US is the largest consumer of natural gas.
Natural gas is consumed in the US for commercial, as well as for residential, purpose. Electric power sector in the US accounts for about one-third of the US' natural gas consumption. Apart from that, around 17 percent of total use comes from households.
In 2019, it has been a cold start to November, with a rise in heating needs. Residential and commercial demands in the month have averaged around 30 bcf/day (Billion Cubic Feet per day), compared to 24 bcf/day in 2018, when the storage was only 3200 bcf, the lowest for over a decade. But, in 2019, the storage condition is far better than the previous year. It is seen in the last five years that the average deficit is around 15-17 percent in cold months of the year. Because of record production and better storage conditions, there will be a huge buffer for the market in 2019.
In 2018 we saw how an early and cold start to winter can quickly result in the surge in natural gas prices. On November 13 and 14 in 2018, gas prices jumped 18 percent to $4.29 in just two days, the highest levels since 2014.
In November, natural gas prices have spiked higher and made a high at $2.90 over the weather forecast. However, it did not sustain that level and dropped almost 14 percent in the first two weeks as inventory data showed a surplus in storage for winter months. Last week, the inventory storage dropped to 94 bcf as the demand has been increased by 10.3 bcf due to falling temperature. All these have resulted in a rebound of prices from the psychological support level of $2.50. In our view, this is a very bullish sign, and it is something that the market has been waiting for.
(The author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.