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Are Natural Gas Bulls Betting on Hurricane Michael?

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Natural gas prices are at an eight-month high

On October 9, natural gas November futures were almost unchanged and settled at $3.27 per MMBtu (million British thermal units)—the highest closing level for active natural gas futures since January 30.

On October 9, the S&P 500 Index (SPY), the Dow Jones Industrial Average Index (DIA), and the S&P 400 Mid-Cap Index (IVOO) fell 0.1%, 0.2%, and 0.6%, respectively. The oil and gas constituents of these equity indexes could be impacted by movements in energy commodities.

Natural gas prices could be important for integrated energy stocks like ExxonMobil (XOM) and Chevron (CVX). Their upstream businesses operate with a production mix of ~39% in natural gas.

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Are natural gas bulls betting on Hurricane Michael?

In the trailing week, natural gas November futures rose 3.2%. In the Gulf of Mexico, 28.4% or 726 million cubic feet per day of natural gas production has been disrupted due to Hurricane Michael, according to the Bureau of Safety and Environmental Enforcement. The loss will be ~0.8% of the total natural gas output in the United States.

However, there are concerns surrounding the natural gas supply during the winter season. Natural gas inventories are below their five-year average. So, any fall in production would add more upside to natural gas prices. In Part 3 of this series, we’ll discuss the natural gas inventory levels.

Important price points

On October 9, the natural gas active futures were 8.7%, 11.4%, 12.5%, and 14.4% above their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. Prices above these key moving averages indicate bullishness for natural gas.

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