Market Insights: Natural Gas Prices

Macroeconomic and Market Developments:

• North American markets were down this week. In Canada, the S&P/TSX Composite Index decreased 1.44%. In the U.S., the Dow Jones Industrial Average fell 2.99% and the S&P 500 Index decreased 2.67%.
• The Canadian dollar declined this week, closing at 73.50 cents vs 74.21 cents last Friday.
• Oil prices increased this week. U.S. West Texas crude closed at US$76.55 vs US$76.29 last Friday, and the Western Canadian Select price closed at US$60.10 vs US$58.03 last Friday.
• The gold price fell this week, closing at US$1,811 vs US$1,841 last Friday.
• The Canadian Consumer Price Index (CPI) rose 5.9% from a year ago, slower than the 6.1% pace expected by economists and down from the 6.3% annual pace in December. This is the first reading under 6% in the year over year inflation rate since February 2022. Two key yearly measures tracked closely by the central bank, the trim and median core rates, were slightly lower with an average of 5.05%, down from 5.25% in December.
• On the flipside, U.S. inflation data came in hotter than expected with the Personal Consumption Expenditures (PCE) price index increasing 0.6% for the month and 5.4% from a year ago. The core PCE increased 0.6% for the month and 4.7% year over year. These numbers suggest inflation accelerated to start the new year, dampening hopes that the Federal Reserve will pause its interest rates increases.
• Suncor Energy (SU) announced the hiring of Rich Kruger as new President and CEO, effective on April 3, 2023. Kruger was with Exxon Mobil for 39 years, including leading Imperial as Chairman, President, and CEO from 2013 - 2019 before retiring from the company.
• Teck Resources (TECK.b) will spin off its steelmaking coal business by separating into two independent publicly listed companies. Teck Metals Corp will focus on metals needed for the shift to green energy and Elk Valley Resources Ltd will operate the coal assets. The company also proposed a six-year plan to retire its dual class share structure.
• Chipmaker Nvidia (NVDA) released earnings after the close on Wednesday that impressed investors. The company reported adjusted earnings of $0.88/share vs expectations of $0.81/share on revenue of $6.05 billion vs expectations of $6.00 billion. Nvidia stock has been rising so far this year in anticipation of an increase in demand for their chips due to the buzz surrounding AI software ChatGPT.
• Tech giant Apple (AAPL) has achieved major breakthroughs in a secret project to develop a continuous blood glucose monitoring system, according to Bloomberg. The moonshot-style project known as E5 dates back to the Steve Jobs era, and if the company can hit its ultimate goal of incorporating it into the Apple Watch, the device will become a must-have for millions of people.

 

Weekly Diversion:

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Charts of the Week:

A few weeks ago, we touched on the price of Natural Gas Futures and the significant decline observed since prices soared six months ago. The reason for the decline in the price for Natural Gas Futures is quite simple - despite all the news about severe weather and the gripping cold we currently find ourselves in, the winters have been relatively mild overall in North America and Europe. This mild weather has drastically affected the demand for natural gas and caused future prices to plummet. The table below represents these future prices.

Source: Bespoke Investment Group

As seen in the table below, last year’s peak natural gas price occurred just over six months ago at US$9.68 per MMBtu (metric million British thermal units), but future prices have seen a significant drop in value of almost 80% from this high. This six-month decline also represents the largest decline on record, easily beating the previous record drop of 68%.

Source: Bespoke Investment Group

The price of natural gas also did something this week that it hasn’t done since 2020, which was trade below US$2.00, achieving this feat briefly on Wednesday. This ends a 607-trading day streak above $2.00 and represents just the fifth occurrence where natural gas prices went a year or longer without falling below $2.00 on an intraday basis. Taking a look at the table below, we can observe the future performance at different intervals with the main focus on one year after the streak ending, resulting in higher prices in all four prior occurrences. Time will tell how prices react after this most recent breach of the $2.00 price point, but in the short-term we can look forward to potential lower energy costs and perhaps a future windfall for Alberta gas companies.

Source: Bespoke Investment Group

DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges.

Sources: CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, Bespoke Investment Group, First Trust, Seeking Alpha