Market Overview

Nat Gas Bears Admit There Could Be Some Upside This Summer

Nat Gas Bears Admit There Could Be Some Upside This Summer

After a strong 2016, natural gas prices and United States Natural Gas Fund, LP (NYSE: UNG) investors have taken a pounding so far in 2017. The UNG is down 27.3 percent year-to-date after the winter weather was warmer than anticipated. Natural gas prices peaked above $3.60/MMBtu in late 2016 before plummeting as low as $2.70/MMBtu in late February.

A Bearish Approach

Despite the fact that the firm is bearish on natural gas in the long-term, Credit Suisse analyst Jonathan Aronson believes gas investors could see some positive momentum heading into the summer months. According to Aronson, the natural gas market will see “generous production growth” throughout the remainder of 2017. That growth will be a headwind for gas prices in the longer term, but Credit Suisse sees evidence of a near-term rebound in gas prices.

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“If supply does not pick up quickly, prices will need to rise to fill storage this injection season — even if at end March there’s still ~2 Ts in the ground,” Aronson explained.

Looking Forward

Credit Suisse if forecasting Henry Hub gas prices of $3.00/MMBtu for Q2, $3.25/MMBtu in Q3 and $3.50/MMBtu in Q4 with additional upside if supply growth lags expectations.

Back in January, Johnson Rice analyst Jon Rowan told Benzinga that the Trump administration will likely facilitate an uptick in natural gas production.

“Onshore headwinds like pipeline restriction will go away, so transportation costs will go down,” Rowan said.

Despite the early 2017 selloff, natural gas prices are still higher than they were a year ago when they dipped below $2.00/MMBtu for the first time in more than a decade.

So far this year, the levered VelocityShares 3X Long Natural Gas ETN linked to the S&P GSCI Natural Gas Index (NYSE: UGAZ) is down 65.8 percent, while the VelocityShares 3X Inverse Natural Gas ETN linked to the S&P GSCI Natural Gas INdex (NYSE: DGAZ) is up 96.7 percent.


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