Natural Gas Could Head Lower. Natural Gas is one of the most important commodities today. In the United States, the Clean Power Plan led to a decrease in demand for coal, which used to play the core role in power generation. These power companies moved to the readily available natural gas.
Because of the widespread use, the price of natural gas has been falling since its peak in 2005 when it reached $15. Today, the NYMEX futures quote natural gas at $2.957 per bcf.
Like crude oil, natural gas is formed deep inside the earth’s crust. Scientists believe the gas was formed millions of years ago when the remains of plants and animals broke down after they were exposed to heat.
Natural gas is mainly comprised of methane, which is comprised of hydrogens and carbons. People love natural gas because it’s a cleaner fuel compared to other petroleum derivatives and coal. It produces no major greenhouse gases.
Most of the natural gas is trapped in shale rocks miles inside the crust. The discovery of the fracking technology has made it possible for oil and gas companies to reach more natural gas. As a result, the increasing demand for natural gas has met an equal supply.
Early this year, the price of natural gas soared to the highest yearly level of $3.66 as the cold winter period extended expectations.
However, in the past few days, the price has fallen to the lowest price since January 10th. This has happened as investors take profit and as the market braces for more supply.
Going forward, as the winter cold declines, I expect the price of natural gas to potentially remain subdued. Markets will be watching for the commodity to fall to the 2.803 which forms an important support level.