Keep An Eye On This Commodity…
With a drop of nearly 9% since June 1st, it has been an ugly few weeks for the price of natural gas.
Why such a hefty downturn?
Quite simply, investors are reacting to large weekly storage injections. Last week’s EIA natural gas storage report revealed a 100 bcf build. The previous four weeks reports disclosed injections of 110, 113, 107, and 119 bcf.
Without question, consistent triple digit inventory injections are quickly erasing any doubt that natural gas producers can pile large quantities of the commodity into storage.
Over the past month, injections have been at least 20% higher than the five-year average weekly build.
As a result, energy investors are becoming less concerned about the whopping inventory drawdown seen earlier this year. As you may remember, an exceptionally cold winter took US natural gas storage levels to 11-year lows at 800 bcf in March.
But here’s the deal…
Even with these consistent triple digit injections, there’s little chance US inventories reach the 5-year average of 3,800 bcf by November 1st. In case you’re unaware, the 3,800 area is considered the ‘comfort zone’ for US inventories as the winter heating season begins.
And get this…
In order to reach the comfort zone by November, weekly injections need to be at least 50% above the 5-year average, instead of 20%. In fact, in yesterday’s EIA Short Term Energy Outlook, the government agency foresees US inventories falling short of the comfort zone by 380 bcf this year.
That’s right, the EIA is openly telling investors that US storage levels will be around 3,430 Bcf at the start of the heating season.
What’s that mean for the price of natural gas?
While the price action in the commodity has been undeniably weak in recent trading, investors will likely use the low $4 area as a buying opportunity.
Let me show you what I mean…
As you can see, natural gas is currently teetering on the $4.20 mmBtu level. And given the NOAA’s forecast for cooler than normal US temperatures over the next 6-10 days, it’s likely the commodity falls to technical support at $4.00.
With it trading at multi-month lows near $4, you’ll have a great low-risk opportunity to buy natural gas.
How can you capitalize on the situation?
There are numerous natural gas based commodity ETFs including the US Natural Gas Fund (UNG) and the US 12-month Natural Gas Fund (UNL).
Until Next Time,
Justin Bennett
Category: Natural Gas
