Natural Gas Nearing $2 As Seasonal Favorable Period Nears
Based upon the NYSE ARCA Natural Gas Index (XNG) there is a seasonal tendency for natural gas companies to enjoy gains from the end of February through the beginning of June although the bulk of the move is usually complete in May. Detailed in the Stock Trader’s Almanac 2020 on page 92, this trade has returned 13.3%, 13.4%, and 16.9% on average over the past 15, 10, and 5 years respectively. This seasonal strength can be seen in the following chart, highlighted in yellow.
One of the factors for this seasonal price gain is consumption driven by demand for heating homes and businesses in the cold weather northern areas in the United States. In particular, when December and January are colder than normal, we see drawdowns in inventories through late March and occasionally into early April. This has a tendency to cause price spikes lasting through mid-April and beyond.
This winter has gotten off to a slow start in the Northeast with relatively mild temperatures thus far, but the forecast appears to be changing with colder temperatures appearing. Natural gas has been falling since a brisk run-up in late-October/early November of last year and is now quickly approaching $2 per MMBtu. Inventories are plush and its price could still go lower yet, but $2 per MMBtu has been a price where past rallies have begun around. The situation appears to be setting up well for a rebound in natural gas and the stocks of companies that supply it.
