October 24, 2016
by Matthew Mattingly
The Bulls finally had enough, well at least for a little while. For over 2 years the Bears continued to put downward pressure on the NYMEX natural gas market. Supported by record production and excess supply, the Bears moved NYMEX pricing to levels not seen since Bush was president…that is George HW Bush. However, the winds of change started to occur this past summer and the Bulls started to get momentum. The momentum snowballed in early October, shooting prompt month pricing over $3.30/MMBtu, and the upcoming winter strip over $3.50/MMBtu. But this recent momentum could only take the Bulls so far, and bearish fundamentals finally pushed back. Choice Energy Services has talked about the natural gas fundamentals in other reports (ex Bulls & Bears), but let’s take a closer look into the numbers behind this natural gas price rollercoaster that occurred over the past couple of weeks.
The Numbers Behind The Rally
On 10/13/2016, prompt month natural gas settled at $3.341/Dth representing an increase of over $0.40/MMBtu in less than ten trading days. Prompt month pricing above $3.30/MMBtu hasn’t been seen in awhile. In fact, it has been nearly two years seen we have seen it at that level when it settled at $3.464/MMBtu on 12/19/2014.
What is more impressive is that we were able to reach the $3.30 pricing level in2016. Earlier this year when many were discussing the possibility of running out storage, NYMEX prompt month pricing reached historic lows. On 03/03/2016 it reached its bottom at $1.639/MMBtu. Thus, the prompt month pricing has doubled since that time, representing a 103.84% increase over the low that was established in March.
The move up has not only been in prompt, but the remainder of the future curve. Calendar 2017 has seen the largest move. Coinciding closely with prompt month pricing, Calendar 2017 reached a low of $2.469/MMBtu on 2/25/2016, but quickly bounced as summer approached. The peak for Calendar 2017 just occurred on 10/18/2016 when it settled at $3.426/MMBtu, representing a 39% increase from its established low. On the other hand, Calendar 2018 and 2019 have broken away from Calendar 2017 and are trading at a discount (check Bulls & Bears for more information on this occurrence).
Not So Fast My Friend
Although pricing did get up to $3.341/MMBtu for prompt month trading, it didn’t stay there for long. Pricing quickly fell from those levels, with five of the next six trading days at a negative. NYMEX prompt month quickly retreated back below $3.00/MMBtu this past Friday, representing a 10.4% drop in just six days. The momentum is only moving further south with trading this Monday morning, October 24th already reaching a low of $2.88/MMBtu. Calendar 17 has come down as well (now at $3.35/MMBtu), albeit just slightly compared to prompt.
Summary
The Bulls have moved this market up from the lows it reached in Q1 of this year, but it got a little ahead of itself in October. There are just too many bearish fundamentals that are currently weighing down the natural gas market in the near term. The Natty Bulls may have escalated the market a little too quickly, but at least it shows it still has some life left in it. They looked almost dead six months ago.
Confidential: Choice Energy Services Retail, LP.
