US NATURAL GAS- A WINTER’S TALE © Leo Haviland January 12, 2014

The broad range for natural gas (NYMEX nearest futures continuation) over the medium term (extending beyond the balance of this winter 2013-14) remains roughly 280/310 to 490/520. Many players view “around 350” as a near term equilibrium price. Why is there substantial support around 300? Note the 305 low on 1/2/13 (and the gap relative to the 3.046 high on 9/26/12), the 313 lows of 2/15/13 and 8/8/13, and that a 33 percent fall from the 453 high is about 302.

But what about gas prices specifically for the balance of winter 2013-14? Assuming normal weather and moderate American economic growth, the natural gas trend for the remainder of the current draw season probably is about 340 to 453 (the 12/23/13 top; the 5/1/13 high was 444). Inventory from the days coverage perspective has fallen sufficiently to support prices at higher levels than the longer run 280/310 bottom. Around 338 was the 11/5/13 rally take-off point; 340 is a 25pc tumble from the 453 high.

The current low days coverage level of gas inventory nevertheless implies a warning that a break above the December 2013 summit is not out of the question. Suppose (even if this is relatively unlikely) the US suffers through colder than normal weather for the rest of winter 2013-14, and that overall inventories consequently decline significantly relative to average trends. A five percent break over the December 2013 high gives about 476, a 10pc one 499 (498 was the 6/9/11 high. Recall 2010’s 6/16/10 top at 520 and 8/2/10’s around 501; a 50pc rally from the 11/5/13 point is about 507. If severely cold weather is sustained for a rather long time, then six dollars or higher may ensue, even if only on a brief spike. Keep in mind 1/7/10’s 611 pinnacle.

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US Natural Gas- a Winter’s Tale (1-12-14)