The talk of the energy sector over the last month? At first it was cratering crude prices, but quickly the conversation shifted to the often-overlooked by-product: natural gas.
Energy producers and investors had a tough March and a worse April, with crude prices plummeting as the COVID-19 coronavirus enveloped the world and brought demand to a standstill. Initially, natural gas prices followed down to a low of US $1.552 per million British thermal units (MMBtu), but they quickly reversed course and rallied to as high as US $2.134/MMBtu.
Likewise, investor interest in natural gas quickly started to pick up despite warmer months on the horizon. On the Stockhouse Bullboards, the most-viewed companies in the energy sector shifted from crude-primary producers to those with larger shares of natural gas production, or to pure natural gas plays altogether.
The key for the rise of natural gas prices, and stocks, has to do with how the coronavirus pandemic has inadvertently impacted the market. Heading into the lows of March and early April, natural gas prices were dropping on account of a massive oversupply caused by a glut of oil production, and demand hadn’t risen enough to meet it. With oil producers scaling back output from wells in light of the pandemic and worsening demand, associated natural gas production dropped as well and reverse the supply pressure on prices.
At the same time, the drop in demand for natural gas amid the COVID-19 pandemic wasn’t as significant. On one hand, you had decreased demand already expected between seasons of heating/cooling demand, and on the other hand the market had started to increase demand for natural gas before it increased for crude. Everything is relative, and for the energy sector, natural gas was relatively on the up.
It’s the reason many natural gas stocks have been on the up, despite the rest of the energy sector lagging behind. Companies like
Birchcliff Energy Ltd. (
TSX:BIR),
Advantage Oil & Gas Ltd. (
TSX:AAV), and
ARC Resources Ltd. (
TSX:ARX) that had dropped significantly in March rode the rising tide and rapidly recovered.
What’s next for prices and shares of producing companies? As demand for natural gas picks up and pricing starts to look attractive, production will start to pick up. Though prices might continue to rise in the short-term, especially if crude production faces any more setbacks, eventually supply will pressure prices the other way.
However, analysts are looking at the impact that decreased crude production from March onwards will have on crude prices down the line, and the forecast is a further increase in prices down the line. The world’s demand for crude might be starting to pick up, but until crude prices rise enough to the point of profitability and production cuts continue to take place, a lot of the oversupply pressure that has become commonplace on natural gas over the last few years should be avoided.
For investors interested in more natural gas plays, the energy Bullboards on Stockhouse are a great place to start. Recently members have been looking at
Painted Pony Pete Ltd. (
TSX:PONY),
AltaGas Ltd. (
TSX:ALA), and
Crew Energy Inc. (
TSX:CR) to name a few of the companies that have caught the eye of investors.
New to investing in Oil and Gas? Check out Stockhouse tips on How to Invest in Energy Stocks and some of our Top Energy Stocks.
For more of the latest info on Oil and Gas, check out the Energy Trending News hub on Stockhouse.