Bearish (bullish short term)
I still like the 2012 low of $1.92 to be tested again – however, I am certainly not as resolute!
In the face of abysmal fundamentals natural gas still hasn’t settled back to the NOV close towards $2.00 (it is actually trending higher). This is mix of some bulls testing the water for the incoming weather and scaring the weak shorts out of the market. It feels like a short squeeze and it is. The bulls have been waiting on ANY news/weather to stop the bleeding. So if there is any sustained cold weather, there could be a massive short squeeze on the horizon (and it is starting to feel like it is imminent or maybe my sinus infection is clouding my judgment). what the big picture looks like.
- The record for underground storage was shattered last week and the market is looking at another addition reported this week ~16 BCF
- There has been NO weather and we are heading into the back end of November
- Crude prices crossed the 40$ level for the first time since the implosion after the 2008 crash
- This will act as a pseudo anchor for all commodities
- Rig counts went up last week
- El Nino is likely to keep any real cold weather far north of the US lower 48 this winter – keeping the glut into the start of injection season
- Worldwide natural gas prices are low – so will it make sense for producers to export on new deals?
- WW III is about to break out in Syria and commodity prices have actually gone down.
- The US smokestack economy is in RECESSION – killing a great deal of industrial demand
Given all of this – any kind of sustained cold weather in the major heating regions of the country will give the bulls some ammunition to make an attempt to bid the market higher – and given the record paper short position – and the fact that there are still physical hedgers out there – there is an opportunity to create a massive short squeeze similar to the one in 2013/2014 winter that took spot prices to over 6$ - that kind of move is very unlikely, but any serious rally towards 3.50 would indicate the squeeze is on.
I am curious to see how the market reacts to the cold that is sweeping across the country now given that NOAA shows much of the major heating regions to warm up within a week or so.
Further out the Curve –
Long term nat gas futures have fallen significantly creating a very good opportunity for a long term hedge.
Bearish long term - Bullish (for now) short term
The market gapped up significantly as the DEC contract took over prompt and unlike the previous 2 contract expirations that found the new prompt month tracking back to the previous contract’s close (the spread was consistently ~20 cents) – the DEC contract is standing firm and actually ticking up a bit. DEC is definitely in a consolidation pattern and there has been one attempt to break out that failed on Monday morning at the $2.441 resistance level (the years previous low). There isn’t really a clear directional indicator anymore and I think that speaks to traders waiting with bated breath to see what happens with the weather that has moved in – i.e. is this the last week of injections? All of this said – the market is bearish technically and I see strong resistance at $ 2.60.
Some things to note:
- The 100 and 200 DMA have reversed course and they are now widening the gap (yellow highlight) bearish
- The 50 DMA looks like it has become resistance as well (red)
- The MACD and parabolic indicators have both turned short term bullish (PI = dots)
- The upward trend and the $2.441 resistance have formed a very weak bullish flag formation --- signaling a breakout to the upside
- The DEC contract gapped down back in October that could end up getting filled and becoming resistance at $2.50 – this would indicate a short move to the upside and a trip back down to the contract lows. A breakthrough that area would indicate testing $2.60 and beyond
So basically technically I am a little wait and see myself – but short term there is a weak indication of a move to the upside. But I have no confidence in a reversal of this market and look lower prices banking on EL NINO keeping the MW and NE warmer than normal this winter.
DEC contract –
Natural Gas Inventories currently stand at 3,985 BCF
The EIA reported a net gas storage injection of 54 BCF for the week ending October 30, 2015. This week’s report was above the market’s expectation which was centered around an injection of 49 BCF. It is bearish against 40 BCF injected in this same week last year and against the five year average withdrawal for this week of -12 BCF.
Natural gas inventories currently stand at a new all-time record high of 3,985 BCF which is 379 BCF greater than from this same week last year and 180 BCF greater than the five year average.
This week the estimates call for continuing into record territory with an injection of 20 BCF with a range of 3-50 BCF (next highest is 26 so 50 is an outlier). this report last year showed a withdrawal of -17 BCF - and the five year average is -36! With the cold seemingly fleeting – you can see my hesitancy to go full on bull here.
As stated throughout – the entire lower 48 is seeing a very big cool down and the northern latitudes are getting their first real weather this season. BUT it looks like that will mostly run its course this week with the outlooks showing normal it warming up next week.
And even further out – while a large cold front settles over the country west of the Mississippi the major gas burners west of the river are seeing warmer than normal temps -
El Nino -
We are in the midst of the 2nd strongest EL NINO on record (it’s looking like 1997 keeps the title) and it has already had some drastic effects on us here. – i.e. setting up a hurricane barrier at the opening to the gulf and the tropics – keeping temps across the country warm through mid-November- showered the west and plains with showers and storms…. In the U.S., the season of strongest El Niño impacts is December through March. While we’re waiting to see what the strong 2015-16 El Niño brings us – and I am guessing it will be a very warm winter for our Yankee friends!