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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Why Natural Gas Prices Have Hit The Wall

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July natural gas futures mounted a slight recovery on Thursday after the release of the weekly U.S. Energy Information Administration’s weekly storage report, however, the buying wasn’t strong enough to turn the market higher for the week. This suggests the reaction may have been fueled by short-covering.

According to the EIA, natural gas supplies in storage in the U.S. rose more than expected last week. The EIA said in its weekly report that natural gas storage in the U.S. rose by 68 billion cubic feet for the week-ended May 12. Traders were looking for a build of 61 billion Bcf.

In comparison, last week’s report showed a build of 45 Bcf for the week-ended May 5. A year ago, the increase was 73 Bcf and the five-year average is a rise of 87 Bcf.

The EIA also said that total natural gas in storage currently stands at 2.369 trillion cubic feet, 13.6% lower than levels at this time a year ago, but 10.8% above the five-year average for this time of year.

Weekly July Natural Gas Forecast

With the storage report out of the way, investors are going to go back to focusing on limited production, rising exports and the weather models.

The limited production and rising exports are going to continue to be long-term supportive. This should underpin the market on dips.

A change in the weather forecast earlier this week is the catalyst behind this week’s selling pressure. According to the latest weather models, most of the key U.S. demand areas should experience mild temperatures over the next two weeks. This should lead to limited demand at that time.

We have a longer-term bullish view on natural gas because of lower production and rising exports, however, this may only be good enough to provide support at this time. In order to trigger a rally, we’re going to need to see the return of warm weather to increase air-conditioning demand. This is likely to lead to a sideways trade over the near-term.

Weekly July Natural Gas Technical Analysis

(Click to enlarge)

The main trend is up according to the weekly swing chart. The trend turned up last week on a trade through $3.489. A trade through $3.209 will turn the weekly trend to down.

This week range has been inside the previous week’s range, indicating investor indecision and impending volatility. This makes sense because the week began with the market poised to continue its rally due to favorable weather conditions, lower production and rising exports, but is going to end lower due to a change in the weather forecasts.

The short-term term range is $3.209 to $3.506. Its 50% level or pivot is $3.358. Trading below this level is giving natural gas a short-term downside bias.

The main range is $2.888 to $3.506. Its retracement zone at $3.197 to $3.124 is the primary downside target. This area has to hold in order to maintain the upside bias at the start of the summer cooling season. This should lead to increased demand.

This week, we’re looking for a range bound trade inside $3.358 to $3.197. We’ll turn bullish again if buyers can overcome $3.358.

Weekly July WTI Crude Oil Recap

Crude oil had a volatile, two-sided trade this week, but it looks like it is going to close the week with a slight upside bias. The market was driven lower early in the week by concerns over U.S. production, but supported enough to trigger a rally on renewed confidence in OPEC’s ability to extend production cuts beyond the June deadline and a friendly U.S. Energy Information Administration report.

Weekly July WTI Crude Oil Forecast

The fundamentals have been friendly for crude oil this week, but standing in the way of an even bigger rally has been a major retracement zone. We could see further upside action if the area is overcome.

The combination of an extension of the OPEC/Non-OPEC production cuts and the sixth consecutive week of lower U.S. crude stocks is encouraging short-sellers to bail out of their positions at this time. General nervousness ahead of OPEC meeting on May 25, may lead to a continuation of the move.

Weekly July WTI Crude Oil Forecast

(Click to enlarge)

The main trend is down according to the weekly swing chart. However, momentum is trending higher. The main trend will turn up on a trade through $54.45. A trade through $44.13 will signal a resumption of the downtrend.

The short-term range is $49.29 to $50.51. This zone is currently being tested. The lower or 50% level of this range at $49.29 is essentially controlling the direction of the market.

Look for an upside bias, but a labored rally as long as the market can hold above $49.29.

The first upside target is the short-term Fib level at $50.51.

The main range is $58.15 to $44.13. Its retracement zone is $51.14 to $52.79. Taking out and sustaining a rally over $50.51 should lead to a test of the main retracement zone.

We could see steep correction back to $47.00 if $49.29 fails as support.

The tone of the market this week will be dictated by whether investors want to be long or short going into OPEC’s May 25th meeting. So far it looks like the shorts are pairing positions into the meeting.




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