Will Natural Gas Jump to $6?

As you know, price recovery in summer 2016 was driven by the same logic as in summer 2012 (see our research reports here and here). Now, as we have entered withdrawal season, we are starting to see more similarities, but this time with 2013-2014 winter.

Comparing Winter Fundamentals

(December-February)

* - latest forecast

Todal demand this winter is currently projected to be stronger than during the winter of 2013-2014, but supply is also expected to remain stronger and overall balance, therefore, is seen as being slightly "less bullish" than three years ago. Does it mean that average winter price in 2016-2017 should be lower than in 2013-2014? Probably. But how much lower?

In the period from October 3, 2016 till today, natural gas futures price has been trading 18% below the level in 2013. However, other natural gas substitutes (especially, heating oil) are cheaper. 

Another reason to assume that natural gas prices will not be trading above $4.50 (as they did in 2013-2014) - is the storage forecast. Currently, we expect natgas stocks to fall by no more than 10% from five-year average. We definitely do not expect natural gas price to jump to $6 per mmbtu, but prices should stay elevated given that storage forecast remains bullish and structural imbalance can only be corrected by a prolonged period of higher prices (definitely above $3.00). See the charts below.