Natural Gas Weekly Fundamental Analysis February 27 – March 2, 2012, Forecast

Economic Events: (GMT)




High      5.13 January 2011

Low      2.29 January 20, 2011

Rule: Natural gas is sometimes said to be the queen of all commodities, with Crude Oil being king. Natural gas is nevertheless a major commodity in its own right, which is used for everything from cooking food to heating houses during the winter. Natural Gas is growing much faster than either of its non-renewable fossil fuel competitors, oil and coal.

Trading natural gas is not for the faint hearted. Even by commodities standards, natural gas is a notoriously volatile market subject to wild price fluctuations.

Do not miss the weekly U.S. gas inventories report. The figures are issued by the Energy Information Administration (EIA) every Thursday afternoon at 15:30 (released Friday at 15:30 if there was a U.S. bank holiday on Monday). Here’s a link to the latest EIA report. The main natural gas moving figure in there is the change in inventories from the previous week. When it comes to the gas inventories report, we’re talking about billions of cubic feet, for short.

When the actual change in inventories number is released, it is the deviation from the expected number that is really important. If the actual inventories figure shows a 24 rise when an 84  increase was expected, then that is actually positive for the price of natural gas. All else equal, the price of natural gas should rise after the release.

A barrel of oil has roughly 6 times the energy content of natural gas. If the fuels were perfect substitutes, oil prices would tend to be about 6 times natural gas prices. However, due to various market characteristics discussed briefly above and the ease of using oil, the price of oil has been following a pattern of 8-12 times that of natural gas. However that ratio has spiked dramatically since March 2009.

Analysis and Recommendation:

Natural Gas ended the week at 2.686 after hitting a high earlier in the week of 2.825. NG has been in the news a good deal lately, with announcements from Chesapeake Energy with their future growth predictions along with news of more use of natural gas in the future and environmentalist concerns in regards to the process used to capture the gas. Inventories this week showed a drop as expected. Weather has been holding and winter is coming to an end along with the possible higher demand for NG. Natural Gas should bottom out over the next month.

Working gas in storage was 2,595  as of Friday, February 17, 2012, according to EIA estimates. This represents a net decline of 166  from the previous week. Stocks were 753  higher than last year at this time and 744  above the 5-year average of 1,851 . In the East Region, stocks were 300  above the 5-year average following net withdrawals of 97 . Stocks in the Producing Region were 343  above the 5-year average of 650  after a net withdrawal of 58 . Stocks in the West Region were 102  above the 5-year average after a net drawdown of 11 . At 2,595 , total working gas is above the 5-year historical range.

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