Natural gas investors are betting that natural gas will be in short supply next winter, and they're buying gas now in anticipation of higher prices ahead, according to a recent article by Barron’s.
Natural gas is most in demand for winter heating and summer power generation for air conditioning, according to the article. “Last winter brought freezing temperatures to the U.S., and demand for the fuel ran stockpiles down to the lowest level in 11 years,” the article states. “The cold weather also continued for longer, reaching into early May. That has cut into the time producers have had to rebuild stockpiles.”
The U.S. Energy Information Administration predicts natural gas in storage by October of this year will be down 9.4 percent from last year, but some analysts expect an even more severe shortage. “Since the market has already ‘lost’ six weeks out of this key injection period, any demand or supply adjustment to achieve more rapid injections [of gas into storage]…will need to be correspondingly more heroic,” said Michael Hsueh, a strategist at Deutsche Bank, in a recent note.
“Eventually, summer will arrive, and injections will be unable to continue this torrid pace,” says Aaron Calder, senior market analyst at energy-consulting firm Gelber & Associates, in a note. “The prospect of possible hot weather and smaller injections are keeping bullish traders interested.”
Any increase in natural-gas demand this summer would make it that much harder for producers to refill stockpiles, according to Barron’s. “It could well be that the market will remain comfortable about entering winter with the smallest amount of storage gas since 2005,” Hsueh says. “However, the cumulative 19 percent demand growth since 2005 combined with the ever-present risk of colder-than-normal weather would argue otherwise.”
To read the Barron’s article, click here.