Over the past six months, natural gas prices have taken a serious hit; falling more than 40% to around $2.60 per million British Thermal Unit (BTU). With warmer spring weather arriving, many are forecasting this spring to be one of the weakest for natural gas demand in more than 10 years.
However, not everyone is bearish on natural gas. As a result of supply and demand issues, energy entrepreneur T. Boone Pickens has a price forecast for natural gas of $3.00 by this winter. Going forward, he predicts the price of natural gas will trend higher over the following months.
Have Natural Gas Prices Bottomed?
The U.S. Energy Information Administration (EIA) reported Thursday, April 30, that U.S. natural gas stocks (for the week ended April 24) increased by 81 billion cubic feet (bcf) to 1.7 trillion cubic feet. Analysts were calling for an increase of between 84 bcf and 88 bcf. (Source: eia.gov, April 30, 2015.)
Natural gas stocks were 741 bcf higher than last year at this time and 75 bcf below the five-year average of 1.78 trillion cubic feet. The five-year average for the week is an increase of around 55 bcf.
The lower-than-expected increase in the stock of natural gas sent prices higher after the information was released. Natural gas prices opened Thursday at $2.53 per million BTUs and jumped 3.1% to an intraday high of $2.61 following the release.
That said, natural gas prices are still trading at the lowest level in three years and second lowest level in approximately 13 years. And the near-term outlook for natural gas prices remains muted. Contracts for May natural gas are at $2.52 per million BTUs.
The demand for natural gas is soft right now. Thanks to warmer spring weather, heating demand for natural gas is down. And because we are not yet in the thick of summer, the cooling demand of natural gas has also yet to develop.
But even then, natural gas futures contracts for June are at $2.59, while September contracts for natural gas are at $2.68. Interestingly, natural gas prices are hovering near a support level of $2.50. While there is nothing out there to move natural gas prices higher, there is also nothing to push natural gas prices lower.
At the same time, any student of technical analysis will know that natural gas does not spend very much time trading around the $2.50 mark. Over the last 10 plus years, every time natural gas dipped to around $2.50, it quickly rebounded above $6.00.
Chart courtesy of www.stockcharts.com
Natural Gas Prices to Hit $3.00 by Winter?
While few are forecasting a huge bull run in the price of natural gas, some expect natural gas and oil prices to make solid gains by the end of 2015 and make a bigger push over the next 12 to 18 months.
It may not be the most objective opinion, but energy entrepreneur and BP Capital Management founder T. Boone Pickens said he expects challenges with supply and demand and geopolitical tensions to send oil and natural gas prices higher by the end of this year. The 87-year-old forecasts natural gas prices will reach $3.00 this winter and oil prices will rise to $70.00 per barrel by the end of the year, hitting $100.00 per barrel in the next 12 to 18 months. (Source: nbc.com, April 27, 2015.)
This would be welcome news to natural gas providers (and natural gas ETFs), which have seen the price of the commodity drop almost 60% since early 2014.