U.S. April Natural gas futures touched a three-month low this week, after the release of a disappointing U.S. government report showed supplies in storage fell less than expected the previous week.
According to the U.S. Energy Information Administration, natural gas in storage declined by 114 billion cubic feet in the week-ended February 10, below the forecast for a drawdown of 124 billion cubic feet.
Last week, the report showed a withdrawal of 152 Bcf during the week-ending February 3. A year ago the draw was 163 billion Bcf. The five-year average for this time of year is 156 Bcf.
The EIA report also revealed that total gas in storage currently stands at 2.445 trillion cubic feet. This is about 12.4% lower than levels reached a year ago and 3.5% above the five-year average for this time of year.
Looking ahead to next week's report, based on temperatures the week-ending February 17, we're likely to see another low draw figure. Next week's EIA report could show a draw of about 83 Bcf.
The catalyst behind the selling pressure are the warmer than normal temperatures. According to the National Weather Service's eight to 14 day forecast, cooler weather will move east toward the Rockies, but the high-demand areas in the eastern U.S. will continue to see above-average temperatures.
The recent price action on the charts suggests the last of the speculators, who were drawn into the market on the hopes of an Arctic blast, have been taken out and the…
U.S. April Natural gas futures touched a three-month low this week, after the release of a disappointing U.S. government report showed supplies in storage fell less than expected the previous week.
According to the U.S. Energy Information Administration, natural gas in storage declined by 114 billion cubic feet in the week-ended February 10, below the forecast for a drawdown of 124 billion cubic feet.
Last week, the report showed a withdrawal of 152 Bcf during the week-ending February 3. A year ago the draw was 163 billion Bcf. The five-year average for this time of year is 156 Bcf.
The EIA report also revealed that total gas in storage currently stands at 2.445 trillion cubic feet. This is about 12.4% lower than levels reached a year ago and 3.5% above the five-year average for this time of year.
Looking ahead to next week's report, based on temperatures the week-ending February 17, we're likely to see another low draw figure. Next week's EIA report could show a draw of about 83 Bcf.
The catalyst behind the selling pressure are the warmer than normal temperatures. According to the National Weather Service's eight to 14 day forecast, cooler weather will move east toward the Rockies, but the high-demand areas in the eastern U.S. will continue to see above-average temperatures.
The recent price action on the charts suggests the last of the speculators, who were drawn into the market on the hopes of an Arctic blast, have been taken out and the price action the last two weeks has been hedging pressure or outright shorting.
Therefore, I have to conclude that this market is going to continue to pick-up momentum to the downside until the hedging pressure stops, or the short-sellers decide to cover a little. Even if there is a short-term rally, barring any bullish news, it will probably be another shorting opportunity.
Technical Analysis
Weekly U.S. April Natural Gas
(Click to enlarge)
The main trend is down according to the weekly swing chart. The trend is not likely to turn up this week, but there is always the possibility of a closing price reversal bottom due to the steepness of the current sell-off. The reversal will not change the trend to up, but it could help to alleviate some of the oversold condition. Furthermore, it will also give short-sellers a chance to refresh their bearish positions.
The main range is $2.727 to $3.652. Its retracement zone is $3.080 to $3.190. A close under this zone this week will also be a sign of weakness. Therefore, the retracement zone will be resistance this week along with the previous bottom at $3.103. The best resistance area is the price cluster at $3.080 to $3.103. I don't think we'll be able to overcome this level next week.
Based on the current price at $2.956, the direction of the market this week is likely to be determined by trader reaction to the uptrending angle at $3.027.
A sustained move under this angle will indicate the presence of sellers. They could create enough downside momentum to challenge the next target angle at $2.877.
If buyers can overtake $3.027 then look for the start of a short-covering rally. If enough momentum is created by the move then look for the market to top out around $3.08, in the best case scenario.
Conclusion
Natural gas futures are likely to remain bearish into the end of the month. At that point, end-of-the-month position-squaring is likely to produce a meaningful short-covering rally as traders prepare for the start of spring.
Now that the futures contract is on the bearish side of the major retracement zone, all bullish traders can do at this point is wait for a move into a value area which should come in somewhere above the November bottom at $2.727. The best price to start next week is the uptrending Gann angle at $2.877. That's our primary downside target.
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