It's Almost Time To Start Getting Bullish Natural Gas Again
It's Almost Time To Start Getting Bullish Natural Gas Again
The market is a funny thing. Just a month ago, everyone was going crazy over how high European electricity prices were going and US gas prices went up for a ride. Ever since then, European natural gas prices have corrected meaningfully, while Henry Hub has fallen from $9+ down to $6.6. But just as everyone starts to write off natural gas again, we think it's time to start getting bullish.
In our August 29th report titled, "Natural gas prices look to be peaking for the near term." We said:
In the meantime, we think the recent frenzy is coming to an end. The reality is that Europe is ok from now to November, which at some point during this 3 month period will see European gas prices pull back severely. This means US gas prices will also be materially impacted since the recent uplift came as a result of European gas prices going parabolic.
Looking at the European gas situation today, things have dramatically worsened since we wrote that report. Nordstream 1 is now officially offline due to an explosion. This sent European natural gas prices soaring ~19% today. Meanwhile, US gas prices are down.
Source: Giovanni Staunovo
And if we look at Europe's gas storage situation, while storage is currently above the 5-year average, the outage of Nordstream 1 during the winter will make it very difficult for Europe to withstand this winter.
Now moving over to the US gas market, we expected the near-term weakness as 1) shoulder season demand is here, 2) storage injections were going to be higher than expected, and 3) Lower 48 gas production is rising.
But with the market now pricing in these 3 things, we think the weakness is coming to an end. On a technical level, Henry Hub needs to hold at $6.6 or it risks falling to $5.87, but we think the $6.6 level should hold.