Since the wild ride at the beginning of the year ended when the $2.50 support held, natural gas futures have been relatively calm. We have seen a much more manageable, if less exciting period of around three months during which prices have settled into a gently sloping upward channel. That relative calm, however, could be about to end.
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A week ago, the main Henry Hub natural gas futures contract, NG, broke out of that channel to the upside, only to fall back into it almost immediately. Over the last couple of days, the top of that original channel has once again been challenged and if we hold above it this time a major short squeeze that sends NG much higher again looks likely.
Of course, even if the technical picture looks bullish a sustained move up is only possible if the fundamentals of the market give a reason for prices to rise, and that looks to be the case given the disparity between perception and reality when it comes to gas.
The perception has, for quite some time, been that the new wells coming on line as a result of oil’s sustained climb would result in massive increases in the supply of gas that would inevitably depress the market. The reality, however, is that once seasonal changes are factored in the glut of natural gas is now squarely in the rear-view mirror. Stockpiles are now over thirty percent below their level at the same time last year, and over twenty two percent below their seasonally adjusted…