Natural Gas Fair Value: 14 Days
Natural gas price predictions are given here, based on weather forecasts, natural gas in storage, and other factors.
Let's check at the latest weather reports and forecasts. Bear in mind at all times that live analysts and automatic HFT systems track the weather and hit the matket within seconds of new weather data hitting the wires. It is already priced in after a minute, and can often be seen as price movement after routine weather service updates. A good way to measure the influence of forecasts is to measure the split between spot and futures prices. Prices will move moderately on forecast extreme temperatures. Expect prices to move with conviction when extreme temperatures actually occur. One's trading yield can be increased greatly by quantifying the effect of coming weather and taking positions - long or short - before the markets move on actual weather.
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Natural Gas Data Checked: 2014/04/24 14:50 UTC
NYMEX Natural Gas (ngk14.nym): 4.706 USD per BCF
Henry Hub Bid Week Price: 4.76 USD per BCF
Natural Gas Price Chart
NOAA 6 to 10 Day Temperature Anomaly
NOAA 8 to 14 Day Temperature Anomaly
Strictly looking at supply and demand (without market speculation), the following prices would result...
|Days Ahead||Price (USD)||Storage Level (BCF)||Quantity Change (BCF)||1||4.746||907||8||2||4.738||912||6||3||4.731||917||5||4||4.723||923||6||5||4.713||930||7||6||4.700||940||10||7||4.690||948||7||8||4.683||953||5||9||4.674||959||6||10||4.750||904||-55||11||4.836||842||-62||12||4.921||780||-62||13||5.000||722||-57||14||5.076||667||-55|
Factoring in market action, future natural gas prices look a bit different!
End of season estimates are : 3,575 BCF in storage at a price of $ 4.991 per BCF.
Assume that the effect on natural gas prices is similar for daily spot prices and for futures. Henry hub gets expensive during summer heat waves and frigid winter periods. Likewise, spot NG is pretty cheap during mild shoulder season weather.
Natural gas markets tend to be more bullish when storage is near the five year minimum and bearish when near the five year maximums. Markets also look ahead to "end of season" estimates of natural gas in storage. After extended periods of extreme temperatures, expect pricing to reflect the more extreme quantities of natural gas then.
Extreme cold in producing regions causes price surges due to well freeze-offs. Production drops, and the continued demand results in heavy consuption of stored natural gas. Likewise, periods of mild weather in natural gas producing regions are bearish over time. Producers compete by selling as much natural gas as possible, so storage surges if there are no catalysts to spur consumptiuon.
Always carry out proper research before buying or selling a commodity or stock. This online valuation calculator is only a tool for finding potentially profitable trades, and should be augmented with other information and sound reasoning.