Has Natural Gas Reached it’s 2020 Low?

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February 6, 2020 12:52pm NYSE:UNG

NYSE:UNG | News, Ratings, and Charts

  • The market had expected a 124 bcf withdrawal from storage
  • Only seven weeks to go until stockpiles begin to grow
  • Natural gas sits near the recent low, and the lowest price since 2016 as seasonality continues to point lower

The price of natural gas fell to a marginally lower low over the past week when the March futures contract on NYMEX fell to $1.804 per MMBtu on February 4. Throughout January, the price of the March futures did not trade higher than $2.204, and so far in February, we have not seen the price trade above $1.89 per MMBtu.

In January, natural gas traded to its lowest price during the first month of the year in twenty-one years. With the end of the winter season on the horizon in late March and early April, all eyes are now on the March 2016 low of $1.611 per MMBtu, which may act as a magnet for the price of the energy commodity.

On Thursday, February 6, the Energy Information Administration released its weekly inventory report, and the data did little to support the price of natural gas futures. The United States Natural Gas Fund (UNG) is the ETF product that moves higher and lower with the price of NYMEX natural gas futures.

The market had expected a 124 bcf withdrawal from storage

The EIA reported a slightly higher than expected decline in the amount of natural gas in storage across the United States for the week ending on January 31.

(Source: EIA)

As the chart shows, the decline of 137 billion cubic feet caused total stockpiles to drop to 2.609 trillion cubic feet. The amount of natural gas in storage was 30.8% above last year’s level, and 8.3% over the five-year average for this time of the year.  

(Source: CQG)

The ten-minute chart highlights that the slightly larger than expected withdrawal from inventories caused the price to move higher from a low of $1.832 before the report to around the $1.875 per MMBtu level. The price rose and moved away from the most recent low at $1.804. However, the price action in the natural gas futures market remains bearish as any buyers fear that selling could return on any significant recovery rally.

 

Only seven weeks to go until stockpiles begin to grow

At the end of the 2019 withdrawal season last March, stockpiles of natural gas fell to a low of 1.107 trillion cubic feet. With seven weeks to go until the end of the peak season for demand, the average withdrawal from storage would need to be 214.57 bcf to reach last year’s low. The most significant drop in stocks this year was 201 bcf, and the second-largest drop was only 161 bcf. As stockpiles declines typically tail off at the end of the withdrawal season as temperatures rise, the odds of coming anywhere near last year’ low are virtually nil at this point.

 

Natural gas sits near the recent low, and the lowest price since 2016 as seasonality continues to point lower

The injection season will commence in mid-to-late March, which is less than two months away. The price of natural gas tends to hit a seasonal low during the beginning of the spring season. In 2016, the price fell to a low of $1.611 per MMBtu. With the most recent low at $1.804, the 2016 low is likely to act as a magnet for the price of the energy commodity on the NYMEX futures market over the coming weeks. We could see a lower low over the coming weeks and months.

I continue to believe that any attempt at a recovery will encourage short sellers to return to the market or add to existing risk positions. Seasonality and the high level of stocks going into the 2020 injection season are bearish.

Meanwhile, the lower the price declines, the more opportunities for the summer, fall, and winter seasons ahead. The low at $1.611 per MMBtu in 2016 led to a rally that took the price to well over double that level by the end of that year.


The United States Natural Gas Fund L.P. (UNG) was trading at $14.65 per share on Thursday afternoon, up $0.02 (+0.14%). Year-to-date, UNG has declined -37.18%, versus a 25.69% rise in the benchmark S&P 500 index during the same period.

UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #51 of 109 ETFs in the Commodity ETFs category.


About the Author: Andrew Hecht

andrew-hechtAndrew Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is a top ranked author on Seeking Alpha in various categories. Andy spent nearly 35 years on Wall Street, including two decades on the trading desk of Phillip Brothers, which became Salomon Brothers and ultimately part of Citigroup. Over the past decades, he has researched, structured and executed some of the largest trades ever made, involving massive quantities of precious metals and bulk commodities. Aside from contributing to a variety of sites, Andy is the Editor-in-Chief at Option Hotline.


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