Eight months into 2020 and the year is not finished surprising us. Prices of natural gas in the U.S. had a surprising jump last month and will continue through next year. However, analysts are scratching their heads in coming up with a reason for the sudden price hike.
As a review, natural gas (or fossil gas) is a non-renewable and naturally occurring resource. These gases are used in different aspects of our lives, like heating, cooking meals, electricity, and sometimes fueling our vehicles.
Shale gas, town gas, and biogas are some of the examples of natural gas. There is also dry gas, a gas without the condensation at typical operating pressures and temperatures.
U.S. natural gas prices were generally low and stable since the last quarter of 2019 until July 2020. The prices have been hovering below $2.50, reaching an average of $1.81 in the first half of 2020. The most significant was in June, where it was only $1.63/MMBtu, the lowest since 1989.
Although the coronavirus hit the U.S. and the whole world, the prices were still low. Stunted prices in the first to half of the third quarter of 2020 was mainly due to the cold weather.
This situation was favorably perceived by the analysts to roll onto August; however, that didn’t happen. Out of nowhere, traders are slapped, with prices soaring up to 45%. Neither the fundamentals and technicals explain the reason behind the hike. According to the U.S. Energy Information Administration (EIA), several factors are affecting the natural gas prices:
- Amount of natural gas output
- Natural gas storage capacity
- Imports and exports of natural gas
- Change of weather
- Economic growth
- Prices of other fuels
Crossing out the other factors such as storage capacity (the gas storage is overflowing), analysts investigate the weather. Though the weather is not bullish, some locations were hit by hurricanes. These natural disasters hindered the exports of natural gases; thus, the surged prices.
The US EIA eyes an even higher price in the coming months. They average the price at $2.11 until the end of the year and a whopping $3.25 in 2021. The price hike is due to the halted production due to the pandemic. The EIA sees an average of 84 billion cubic feet per day next year.
Nonetheless, with the RSI reaching 73 last Friday, prices are calming down to $2.45. Hopefully, this pattern pushes through to November, as it is usually the month that natural gas prices spike.