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Energy Market Update: February 6, 2019

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Since June 2016, NYMEX natural gas spot prices have mostly hovered between $2.50 and $3.77 per Million Btu. Recall that natural gas spot contract prices are sensitive to changes in weather. During the 2014 polar vortex, for instance, the price of gas soared to over $6.00.

What does it mean that prices shot up to almost $5.00 toward the end of 2018, only to fall below $3.00 now? Direct Energy Business Strategist Tim Bigler may know what’s going on. Tune in to his analysis below:

Natural Gas Prices

The late-2018 price spike was partly in response to colder-than-normal weather across the U.S. This spike was not as severe as 2014’s polar vortex, and recent weeks have in fact seen an overall decrease in price. How low could it go? $2.50 has acted as a price floor for the last two and a half years, so it may be wise to pay attention to whether prices continue to respect that figure or whether they drop lower – and plan a buying strategy accordingly.

Interest Rates

Furthermore, by looking at the total number of open contracts, we can tell that both buyer and seller interest in natural gas spot contracts is on the rise. Interest reached very high levels as prices remained steady in 2018, but when prices soared at the end of the year, interest dropped dramatically. So, as prices have dropped again, it should not come as a surprise that interest is on an upward move again.

What does this tell us?

At a minimum, it indicates that individuals are willing to sell at lower and lower prices but also that others are willing to buy at lower prices, which means that the $2.50 floor could hold strong depending on whether buyers or sellers respond to demand change first.

Year-Over-Year Prices

Finally, if we look at year-over-year prices, a clear separation is visible between prices a year ago (February 2018), prices three months ago (November 2018), and current prices (February 2019). A year ago, natural gas futures were more expensive in general; both lows and highs were significantly elevated. Interestingly, the average annual low prices (between March and July for each year in question) seem to land in the $2.45 - $2.55 range, but not much lower.

 So $2.50, again, is quite a good price for most buyers, as budgeting allows.

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Posted: February 06, 2019