In March 2020, the price of oil became negative due to temporary factors. This was a great buying opportunity. (I bought XOM at the time.)
I have been puzzled by the recently falling price of natgas. Is this another temporary drop?
The longer-term charts show that the price of natgas rose from $1.63 per MBTU in June 2020 to $6.17 today. In 2022, the price has been highly volatile, fluctuation between $5 and $10 in a matter of months. Right now it’s in a falling trend which might quickly reverse.
By Stanley Reed, The New York Times, Oct. 25, 2022
One of the main reasons for the plunge in prices is that Europe, at least for now, has all the natural gas it needs. That is because over the summer, Europe went on a global buying spree as Russia, its longtime main supplier, reduced its flow of natural gas.
Across the continent, governments and businesses have aggressively replenished how much gas they are holding in storage. At the urging of European Union officials and at a high cost, energy companies and governments have filled underground caverns and other facilities to more than 90 percent of capacity, compared with less than 80 percent year ago…But analysts warn that the recent drop in gas prices could be fleeting — natural gas that is set to be delivered to Europe this winter is already being sold in futures markets at a considerable markup to the current price…
Gas prices in Europe remain historically elevated, even after the recent decline, trading at twice the level set at this time a year ago and even higher versus long-term averages.
As a result, many energy-hungry businesses like aluminum smelters, steel mills and fertilizer plants have at least temporarily shut down…[end quote]
The fall in natgas prices is temporary. The price will probably rise soon. The manufacturers that have shut down won’t be able to re-start until the Macroeconomic situation has improved – end of the war in Ukraine, shipments of natgas from Russia restarted, economies recovering manufacturing and the need for raw materials.
That is a recipe for recession in Europe.
The fall in the natgas price is a blip.