The COVID-19 pandemic and the accompanying price collapse across commodities comes as no surprise, and some longer-term implications can already be discerned with a little bit of digging.
The rolling nearby contract for natural gas has fallen 25 percent on the NYMEX Apr-20 contract on fears of global slowdown, an unexpectedly warmer winter, and stocks well above historic levels.
At this time, the Jul-21 contract has dipped, recovered, and appreciated nominally from the start of the year. This speaks to the structure of the market and of forward-carry assumptions being priced into the future.
Clearly, the nearby picture remains bogged down in a quagmire of pessimistic fundamentals, but the pricing action suggests that demand further out is more optimistic and anticipating a recovery in the longer term.
Prior to the start of this year, that structure had been relatively flat, but we’ve seen a six-fold increase in the forward premium since January, and buyers have clearly been taking advantage of the dip in prices to hedge future requirements, including a recovery in uptake.
NYMEX natural gas futures (Jul-21 vs. Apr-20 spread)
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