Natural Gas: What Can Investors Expect?

The EIA reported a rise of 120 Bcf in natural gas inventories for the last week. However, analysts expected a rise of 106 Bcf in the inventories level.

Rabindra Samanta - Author

Jun. 26 2020, Published 12:51 p.m. ET


This week, Henry Hub natural gas active futures have fallen 13.8%. On Thursday, active futures declined 7.5%. The EIA (U.S. Energy Information Administration) declared the gas inventories for the week ended June 19. Also, the United States Natural Gas Fund LP (NYSEARCA:UNG), which follows Henry Hub active futures, lost 7.5% in yesterday’s trade. 

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Is the inventories spread dragging Henry Hub futures?

The EIA reported a rise of 120 Bcf (billion cubic feet) in natural gas inventories for the last week. However, analysts expected a rise of 106 Bcf in the inventories level. The inventories spread or the difference between the inventories and their five-year average stood at 18.3%. In the week ended June 12, the figure was at 16.9%. In the past, a rise in the inventories spread usually dragged natural gas prices.

What’s the outlook for Henry Hub futures?

So far in June, crude oil prices have gained 9.1%, while Henry Hub’s active futures have declined 19.8%. Usually, oil and natural gas prices move oppositely. When the COVID-19 pandemic started, oil prices experienced a free fall, while Henry Hub’s active futures were steady.

However, Henry Hub active futures will likely rise this year based on the EIA’s STEO report. Lower oil prices could curtail the natural gas output in the US. Also, lower oil prices might help natural gas prices recover in the future. In the next two months, the summer season will be at its peak. Higher temperatures in the US could increase the natural gas demand.

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On Thursday, Henry Hub gas active futures were 14.4% and 17.3% below their 20-day and 50-day moving averages, respectively. Also, Henry Hub’s active futures were 17% and 28.6% below their 100-day moving average and 200-day moving average, respectively.

Prices below these key moving averages suggest weakness in Henry Hub active futures. The 50-day moving average was 13.7% below the 200-day moving average. Usually, the prices stay weaker when a short-term moving average remains below a long-term moving average.

On Thursday, Henry Hub gas futures’ implied volatility was at 64.8%. Based on the implied volatility, active futures will likely close between $1.35 and $1.59 per MMBtu until July 3. The probability of this price range is around 68%. Read Implied Volatility: Where Will Crude Oil and Natural Gas Be in One Week? to learn.


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