In an EBW Analytics Group report sent to Rigzone by the EBW team on Wednesday, Eli Rubin, an energy analyst at the company, warned that natural gas is “nearing [the] price-inelastic portion of [the] curve”.
“Yesterday’s session spanned a wide and volatile 30.5 cent intraday trading range en-route to a $4.565 December contract close – a four-month high,” Rubin said in the report.
“This is near the bottom of the price-inelastic portion of the curve where price increases hold less sway over short-term supply or demand, opening the door to substantial further volatility and price increases,” he warned.
Rubin stated in the report that today’s spot market action may prove pivotal as demand falls more than 13 billion cubic feet per day from Tuesday to Saturday.
“If Henry Hub spot prices relent from Monday’s seven-month high at $3.79 (spot markets did not trade on Veteran’s Day), it may join with the Relative Strength Index nearing technically overbought conditions to yield consolidation,” he said.
The EBW energy analyst went on to note in the report that the long-term outlook for natural gas “is structurally bullish”, adding that “early December could be cold”.
“Near-term pullbacks have been shallower – and shorter – than record high production and market indifference to winter supply adequacy concerns suggest,” he said.
“While short-term consolidation is likely, NYMEX winter contracts rest at the base of a hockey stick curve and could snap steeply higher at any point,” he continued.
EBW’s latest report outlined that Tuesday’s December natural gas contract close of $4.565 per million British thermal units (MMBtu) was up 22.7 cents, or 5.2 percent, from Monday’s close.
The report highlighted that EBW’s prediction for the NYMEX front-month natural gas contract price was “relent and restrengthen” over the next 7-10 days and a “jagged path higher” over the next 30-45 days.
In an EBW report sent to Rigzone on Tuesday by the EBW team, Rubin warned that natural gas momentum showed “signs of softening”.
“The December natural gas contract rose to test key resistance at $4.509 yesterday [Monday], only to return 24.7 cents before stabilizing in the low $4.30s/MMBtu,” Rubin said in that report.
“Henry Hub spot prices reached $3.79 – but the end of the current cold spell implies relenting physical demand to refocus traders on a well-supplied November market,” he added.
In that report, Rubin highlighted that “weather forecasts shed seven HDDs [heating degree days] for Weeks 2 and 3 in a moderating pattern for natural gas”.
“Week 2 will be milder than Week 1, and even a modest injection cannot be ruled out. Collectively, mild weather, record production, storage above 3,925 Bcf, and softening technical momentum are likely to challenge recent upside,” he said.
Rubin went on to state in the report, however, that “long-term fundamentals are robust, weekly average LNG set another record high, and elevated chances for a cold December may limit downside”.
“Any signs of December cold creeping into the forecast could reignite bullish momentum – although current forecasts indicate cold is most likely after Thanksgiving,” he added.
That EBW report highlighted that the December natural gas contract closed at $4.338 per MMBtu on Monday. That closing price was up 2.3 cents, or 0.5 percent, from Friday’s close, the report outlined.
This EBW report also highlighted that EBW’s prediction for the NYMEX front-month natural gas contract price was “relent and restrengthen” over the next 7-10 days and a “jagged path higher” over the next 30-45 days.
EBW AnalyticsGroup provides independent expert analysis of natural gas, electricity, and crude oil markets, EBW states on its website. Rubin is an expert in econometrics, statistics, microeconomics, and energy-related public policy, the EBW Analytics Group site notes, adding that he is “instrumental in designing the algorithms used in our models, and in assessing the potential discrepancies between theoretical and practical market effects of models and historical results”.
To contact the author, email andreas.exarheas@rigzone.com
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