The Real Problem For Natural Gas [United States Natural Gas Fund, LP, Chesapeake Energy Corporation]

natural gasDan Hassey: Last winter, the “Polar Vortex” sent a chill through the United States. The deep freeze halted operations at several major oil and natural gas players … and gave oil and natural gas a strong start to the year.

What a difference six months makes!

Just this week, oil traded below $76 on news that the Saudis were cutting prices to the United States. And natural gas is struggling as supplies continue to grow even now that the “build season” has wound down.

So, it’s no surprise that the energy commodities and many related stocks are trading in bear-market territory. And now, some experts say we can’t count on another deep freeze to heat up the energy space.

According to the National Oceanic and Atmospheric Administration (NOAA), a repeat of last year’s extreme winter weather patterns is “extremely unlikely.”

Of course, some others are still saying it will be a cold winter. But you don’t buy natural gas just because of the weather.

You buy it because it’s needed much more than gold in our global economy.

And just like gold, the better the buy price, the better potential upside you can enjoy.

Gold is still pretty beaten up right now. But natural gas is almost at a healthy fighting weight where we can start to consider adding it to our portfolios again.

The Real Problem for Natural Gas

Weather patterns do have a seasonal effect on natural gas prices. But the months-long slump has been caused by a variety of factors, not the least of which are the pipelines that bring — or should be bringing — natural gas to market.

Pipelines, especially from Marcellus Shale in Pennsylvania, are a big reason why natural gas inventories keep building — which in turn weighs on prices.

The good news is natural gas prices are able to recover, technically speaking. You can see this in the natural gas chart below.

Natural gas prices breached support in the $3.90 area, and not too long ago, it looked like prices were going to establish a new lower trading range.

Now, prices have rebounded and are trading above support.

So the question becomes, will the new trading range move lower to support at $3.60 or higher toward resistance at $4?

The answer probably lies with the weather.

If we do have a cold winter, natural gas prices could break out and move to the next resistance — the $4.80 area.

Again, most forecasters are not expecting a “Polar Vortex” like we saw last year. So prices will probably not rally to last year’s high over $6 — not here in the short term, anyway.

Why Natural Gas is Still on Fire

However, long term natural gas should do better as more power plants phase out their coal-fired boilers and replace them with natural gas.

There is also a chance that natural gas producers will be able to liquefy and export their natural gas to Europe, China and Japan, where prices are much higher.

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