Why Are Natural Gas Futures Up Despite Ample Supply?
Gas futures are increasing even though there is plenty of gas in suppliers' reserves, and investors need to know why.
Quick overview
- Natural gas prices recently hit an eight-month low but rose by 13% on August 13th due to anticipated increased demand.
- Despite ample supply and high storage levels, analysts predict a rise in natural gas futures driven by expected LNG export activity.
- A storm approaching the eastern U.S. may impact demand, but it is unlikely to significantly affect overall supply.
- While natural gas prices have dropped over 18% this month, today's increase suggests a potential bullish shift in the market.
Natural gas prices recently dropped to their lowest point in eight months, but on August 13th, the price of futures increased by 13%, all because analysts expect increased demand for the next two weeks.
Futures for natural gas are up for Wednesday even though they have nearly bottomed out after months of bearish movement. Forecasts now predict that natural gate rates will increase in the coming weeks as demand increases. This is unexpected since liquefied natural gas is coming into plants at nearly record quantities.
There is plenty of fuel in storage to last suppliers and customers for a long time, and military fighting in areas where natural gas is collected and refined has dramatically dropped off in recent months. So, the supply is at little risk of depletion right now, and yet the price of natural gas has risen during the course of August 13th.
How High Is the Supply?
There is a massive storm headed to the eastern coast of the United States next week, and yet gas suppliers are not worried. Storms can sometimes cause higher demand for gas and create shortages, but the area that will be hit the most by the storm only supplies about 2% of all gas in the United States.
The storm could actually hurt demand by shutting down plants and putting parts of the United States into a minor blackout. Until affected areas get back on their feet, the demand would likely be low since there is nothing to power in those areas.
Estimates place natural gas reserves at about 6% above normal, and with ample supply, there is no need for suppliers to panic if there is sudden demand for gas. In recent months, suppliers have been able to fill up their reserves thanks to higher than normal output.
Why Gas Futures Are Rising
A higher level of LNG export activity is expected over the next couple of weeks. That is part of the reason why gas futures are on the rise. There is an expectation of higher demand, but that demand has not materialized yet.
So, the futures’ value could drop shortly if the expected demand never occurs. However, natural gas is up by 0.62% for the day so far, and earlier in the day, the price was up by about 1%. UK Gas is also up 1.30%, while TTF gas has climbed 0.65%.
All of these are down for the month, particularly natural gas, which has dropped more than 18% over the course of the month. That is why today’s increase is so unexpected. Much of the world is still in its summer season, albeit in the latter part of it.
A bullish shift may be coming, and we could be seeing the first indications of it. Demand optimism is high, and while that could carry the prices higher for the very short term, investors will be looking for actual increased demand soon.
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