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US Natgas Prices Sink After Goldman Says Prices "Likely Overshot" 

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by Tyler Durden
Tuesday, Apr 19, 2022 - 07:06 PM

About two hours before U.S. natural gas surged to a 13-year high on Monday afternoon, breaking above $8 for the first time since 2008, Samantha Dart, head of natural gas research at Goldman Sachs, told clients that prices "likely overshot." 

Since Dart wrote the note titled "Tighter U.S. balances drive a higher risk premium, but market has likely overshot," natural gas futures have fallen more than 10% into a correction to around $7.03/mmBtu. From yesterday's high, prices plunged more than 13.55%. Perhaps Dart's note was instrumental in the selloff. 

Dart mentioned how prices had rallied nearly 40% month-to-date to $7.82/mmBtu as of writing the note on Monday morning. She said prices "have moved about $1/mmBtu" over "what current fundamentals justify." 

However, much of her note was concentrated on a "combination of tighter fundamentals and likely increased hedging by off-takers of US LNG." She pointed to ongoing tightness in the market due to the "reallocation of US LNG deliveries from Asia to Europe." She added, "tighter balances justify a higher risk premium vs. previously." 

Dart raised her Summer 2022/Winter 2022-23 natural gas price forecasts to $6.80/$5.60/mmBtu from $4.50/$5.15 previously, vs. forwards at $7.92/$7.91.

Dart said the tightness in the market "helped exacerbate the Henry Hub rally beyond what we believe is fundamentally justified, at current price levels the U.S. gas market lacks supply and demand response mechanisms to force prices lower." She suggested the "current high-volatility environment is likely to persist for the next several months."

So now we know what Goldman Sachs believes is a justifiable level for natural gas prices; anything over $8/mmBtu is overvalued and value is around $6.82/mmBtu. Maybe this will be the new trading range for now. 

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