Natural Gas Keeps Tumbling, But Switching From Coal May Limit Downside
Investing.com | Apr 25, 2019 03:52AM ET
Natural gas may be cheap now, but is it cheap enough for U.S. utilities to switch from coal in droves?
It’s a pertinent question as the U.S. Energy Information Administration is expected to report an inordinately large build of 91 billion cubic feet for last week’s gas inventory, due at 10:30 AM ET (14:30 GMT) today.
The gas injection for the week ending April 19—the fourth for this year since the end of storage withdrawals that transpired during the winter—came amid record gas production and warmer-than-usual spring weather that cut heating demand.
After winter heating peaked in November, gas futures on the New York Mercantile Exchange’s Henry Hub tumbled 36% in December and have fallen without a break over the past four months, accruing a year-to-date loss of 15%.
Henry Hub’s benchmark gas contract hit a near three-year low at $2.478 per million metric British thermal units last week, and is hovering at around $2.51. Investing.com’s daily technical outlook has a “Strong Sell” on the contract, pegging a bottom as low as $2.406.
With the fuel likely to get even cheaper, some analysts think that switching from the costlier coal to gas will be a no-brainer for utilities when summer cooling demand begins in late May.
If such switching gains traction, then gas prices could snap out of their downtrend and even rally, a month from now.
Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, North Carolina, is among those betting on the possibility of Commodity Trading Advisors, or hedge funds, turning bullish as coal-to-gas switching ramps up.
Said Shelton:
“I think prices are too cheap, and it would not surprise me if CTAs had sold 75,000 lots since the last EIA report.”
“Coal-to gas switching, with some load demand, will tighten up supply-demand balances in gas. It is a nice combination of factors to generate a rally that will be as unexpected as this selloff.”
Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, had a similar view.
Said Chirichella:
“With the weather now projected to turn decidedly warmer across most of the country, we may be getting close to a short-term price bottom.”
“Cooler-than-normal temperatures are forecast to overspread most of the northern U.S. this weekend. The below-normal temperatures are expected to continue in the northern U.S. for a few more days in the 6-10-day period, while above-normal temperatures hang on in the South.”
Get The News You Want
Last week’s weather was warmer-than-normal with 62 heating degree days (HDDs) versus a 30-year normal of 73 HDDs for the period. There were 105 HDDs in the same week a year ago.
HDDs measure the number of degrees a day's average temperature is below 65 Fahrenheit (18 Celsius) and are used to estimate demand to heat homes and businesses.
Kent Bayazitoglu, gas analyst at Gelber & Associates in Houston, said gas injections from this week onward could breach the 100 bcf mark as the weather turns progressively warm.
Said Bayazitoglu:
“Weather forecasts are hinting at more demand with heat expected in the Southeast and snow expected for parts of the Rockies.”
Yet, he didn’t expect prices to surge anytime soon. “The weather isn't bullish enough to halt the avalanche of gas to be injected.”
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.