Natural gas eyes $4.00 on possible long-term bottom

Cypriot Celebration

Celebrate good times, come on! The markets are trying to get excited about a last minute deal to save Cyprus, but does anyone really believe that it's the end of this story? The last minute deal to save face and keep Cyprus in the Eurozone by closing some banks may satisfy the market in the short term, but because the banks remain closed, what will happen when they reopen? Will we see a run of money out-flows from large investors that then could create a run on the banks before we can declare this crisis over?

Gasoline prices are starting to crack some more. Trilby Lundberg at the Lundberg Survey is reporting that the average price for regular gasoline at U.S. pumps fell 3.2 cents a gallon in the past two weeks to $3.7074 cents. I'm looking for prices to continue to fall.

Natural gas is still flirting with $4.00 as hedge funds are starting to realize that a major bottom may have been formed. According to CFTC data the net long position held by money managers hit a three-year high as reported by Reuters thus increasing bullish bets by a whopping $2.0 billion. Now some of this is being driven by cold weather, but do not discount the realization of increasing and changing demand patterns that will demand a higher price for natural gas to make sure that demand is met.

For example consider the fact that as reported by Bloomberg News, energy rig counts in the U.S. hit the lowest level in almost two years, according to Baker Hughes Inc. The total rig count fell by 30 to 1,746, the Houston-based field-services company said on its website. The count was the lowest since March 25, 2011. Oil rigs dropped by 17 to 1,324 and natural gas rigs declined by 13 to 418.

Bloomberg Says  "U.S. gas rigs have dropped five straight quarters as declining demand for the heating fuel and a glut of domestic supplies drove down prices, prompting energy producers to focus on more lucrative oil and liquids-rich plays. The gas rig count has ranged from 407 to 439 this quarter as natural gas prices have surged 18%, reaching $3.96 per million British thermal units at 12:27 p.m. on the New York Mercantile Exchange. Last year, natural gas prices averaged $2.827. The average for the five years ended 2012 was $4.862. Power producers have reacted to the low price of natural gas by switching their fuel use to gas from coal. Utilities increased power generation from natural gas by 21% to 1.2 billion megawatts last year and decreased coal-fired generation by 12% to 1.5 billion, the U.S. Energy Information Agency said in a report released yesterday.”

In the U.K. gas supply surged to record highs Friday rising 50% in a day on cold weather and shortage fears yet is easing today. Bloomberg is reporting that, "U.K. natural gas for same-day delivery declined as system flows increased to meet the highest- ever demand for the time of year amid colder-than-average weather. Day-ahead and weekend contracts also fell, according to broker data compiled by Bloomberg. Total flows were at 376 million cubic meters a day, while demand in the 24 hours to 6 a.m. tomorrow was predicted at 373 million, National Grid Plc (NG/) data showed. The average temperature in London tomorrow will be 0.5 degrees Celsius (33 Fahrenheit) versus a 10-year average of 8.4 degrees, according to MetraWeather data on Bloomberg using the ECMWF model. Within-day gas retreated 9 percent to 91 pence a therm at 8:45 a.m. London time. Gas for tomorrow dropped 13% to 91 pence, while the weekend contract slid 20 percent to 84 pence a therm."

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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